Chancellor Philip Hammond delivered his Autumn Statement budget on 23rd November. The main change for expatriates appears to be that the taxing period for those who have left the UK and have a QROPS will be extended from five to ten years.
Philip Hammond’s first Autumn Statement was designed to give the UK ‘an economy that works for everyone’. The main change for expatriates appears to be that the taxing period for those who have left the UK and have a QROPS will be extended from five to ten years.
Chancellor Philip Hammond delivered his first Autumn Statement on 23rd November. It was the first budget after the Brexit vote but does not provide many clues as to what a post-EU world will look like and there were no reactionary tax reforms. There were, in fact, few significant changes which will affect expatriates.
One interesting change going forward is that this will be the last “Autumn Statement”. The 2017 Spring Budget will also be the last spring one. After that the Chancellor intends to deliver a single budget every autumn. This should mean there are less tax changes in a year, and that they are announced well in advance of the new tax year. Finance Bills will be released after the autumn budget.
In the wake of Brexit, the Office for Budget Responsibility has revised the UK’s growth projection down from 2.2% to 1.4% for 2017 and from 2.1% to 1.7% for 2018. 2019 and 2020 remain unchanged at 2.1%.
Mr Hammond noted that the economy had shown strength and resilience following the vote, but said that uncertainty over the exit process is expected to have a significant impact.
To boost productivity he unveiled a £23bn National Productivity Fund to support house building, science and innovation, transport and congestion, and fibre broadband and 5G connections.
The personal allowance will be £11,500 for the 2017/18 tax year, rising to £12,500 by the end of this parliament. In the 2020s it will automatically increase in line with inflation.
The higher income tax threshold will be £45,000 in 2017/18, rising to £50,000 by the end of parliament.
The ISA limit increases from £15,200 to £20,000 in April 2017. Remember, ISAs are not tax free in Spain, France or Portugal. In Cyprus they are tax free if you are a non-Cyprus domicile. The same applies in Malta if not remitted to Malta. Once you have ceased to be UK tax resident, you can no longer add to these investments.
Changes were announced in respect of the tax treatment of foreign pensions. The UK will extend its “taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief”. This limited statement is not very clear, and we should know more once the Finance Bill has been released, but it appears that, if you have a Qualifying Recognised Overseas Pension Scheme (QROPS), you will need to submit UK tax returns for payments for 10 years instead of the current five. If you are resident in Spain, France, Portugal, Cyprus or Malta, under the double tax treaty with the UK taxing rights fall to your country of residence, so you will not pay more tax. If you live in Monaco, however, you will.
For UK residents, the tax treatment of foreign pensions will be more closely aligned with domestic pensions. This probably means the 10% discount on foreign pension income for UK income tax purposes will be lost.
The Money Purchase Annual Allowance will be reduced from £10,000 to £4,000 in April 2017. This is the amount of tax-relieved pension contributions you can make if you have already accessed a pension flexibly.
The pension ‘triple lock’, whereby the state pension rises annually by the highest of inflation, earnings growth or 2.5%, will remain in place for the rest of this parliament. But the Chancellor hinted it may then be scrapped, saying the government will need to tackle the challenges of rising longevity and fiscal sustainability.
UK residential property
All UK residential property will be exposed to UK inheritance tax from 6th April 2017, regardless of the structure it is held in.
The Annual Tax on Enveloped Dwellings charges will rise in line with inflation.
The new 15 out of 20 year rule will apply from 6th April 2017. This means that non-UK domiciles living in the UK will become deemed UK domiciled two years faster than at present, exposing their worldwide assets, income and gains to UK taxation.
Life assurance bonds
From the limited information published with the Autumn Statement, it appears that the government has decided not to change the 5% tax-deferred allowance available on offshore bonds.
UK resident individuals facing a disproportionate tax charge will be able to apply to HM Revenue & Customs to have this tax charge recalculated on a ‘just and reasonable’ basis. This will apply from April 2017.
HMRC will be consulting on a new legal requirement for intermediaries, such as tax advisers and fiduciaries who arrange overseas structures for clients, to notify HMRC regarding such structures. This would include overseas trusts and companies. This marks a new step forward as, until now, HMRC has only been able to be reactionary, not proactive.
More detail on these reforms will be included in the draft Finance Bill in December. If you think you could be affected by any of these measures, seek personalised advice from a professional who can guide you on tax in both the UK and your country of residence, and the interaction between the two regimes.
Any questions? Ask our financial advisers for help.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.