How might changes from April affect expatriates and non-UK residents regarding personal tax, savings, pensions, inheritance tax & UK property?
An increased State Pension, more generous pensions taper relief and a new stamp duty for non-UK residents. What were the key takeaways from the UK Budget that may affect expatriates in 2020/21?
Unsurprisingly, the first UK Budget of the decade – and for new Chancellor Rishi Sunak – was dominated by coronavirus concerns. Unveiling a £30 billion spending package, Sunak asserted he would do “whatever it takes” to get the country through these difficult times.
But what is set to change from April 2020 that may affect UK nationals living abroad?
There were no changes to the personal tax allowances or thresholds.
For those employed in the UK, however, an increased threshold for National Insurance contributions from 6 April to £9,500 could represent an extra £100 a year.
Savings and investments
The capital gains tax exemption continues tracking inflation, increasing from £12,000 to £12,300 (£6,150 for most trusts) from April.
Entrepreneurs’ relief, enabling certain individuals to reduce capital gains tax when selling all or part of their business, had its lifetime relief limit slashed from £10 million to £1 million.
The dividend allowance remains frozen at £2,000.
While the band of UK savings income that can be earned tax-free stays at £5,000 and the annual ISA subscription limit at £20,000, the allowance for a Junior ISA or child trust fund more than doubles to £9,000.
Take note that investments like ISAs lose their tax-efficient benefits once you are non-UK resident. Not only are non-residents ineligible to open and save into ISAs, any interest earned may become taxable in your country of residence.
Take time to explore alternative arrangements that may better suit your particular circumstances, goals and risk appetite.
Although the personal tax-free pensions allowance remains at £40,000, there will be more scope for higher earners to receive tax relief.
Currently, those earning over £110,000 are subject to a “tapered” allowance, but this threshold rises to £200,000 from 6 April 2020. Soon, only those earning an “adjusted income” of at least £240,000 (including salary, dividends, rental income, interest and pension accrual) are set to lose tax relief in the 2020/21 tax year (versus £150,000 today).
However, the minimum level to which the annual allowance can shrink will reduce from £10,000 to £4,000. This will only affect those with total taxable income over £300,000.
Lifetime allowance (LTA)
This continues to increase with inflation (as defined by the Consumer Price Index), adding an extra £18,100 to the maximum amount you can hold in UK pensions tax-free.
Currently, combined pension benefits up to £1.055 million avoid 25% or 55% LTA tax penalties – from April 2020, this threshold will be £1,073,100.
UK State Pension
The National Living Wage increase (from £8.21 to £8.72) helps to boost the State Pension.
Under the government’s “triple lock” commitment, the State Pension currently increases by whichever is highest of inflation, 2.5% or – as is the case this year – average earnings. This means those on the older State Pension will see a 3.9% rise, from £129.20 to £134.25 per week (£262.60 extra a year).
While this includes UK retirees living in the EU, you will need to be lawfully resident in your chosen country before the end of 2020 to continue receiving cost-of-living increases beyond Brexit.
There were no changes to transfers to EU/EEA-based Qualifying Recognised Overseas Pension Schemes (QROPS), which remain tax-free for EU residents.
However, the UK’s 25% ‘overseas transfer charge’ remains for non-EU/EEA transfers. This may be extended once the Brexit transition period ends in December 2020, so take regulated advice to explore your options under current rules.
Countdown is on to review UK pension options before Brexit
UK property: Stamp duty for non-residents
Last year, the government consulted on the introduction of a stamp duty surcharge for non-UK residents purchasing properties in England and Northern Ireland. Although that proposed a 1% rate, the Budget confirmed a 2% surcharge from 1 April 2021, applicable on top of all existing stamp duty.
So if you are non-UK resident and already own a home when you buy a residential property in England or Northern Ireland, you could face up to 17% in stamp duty costs from April 2021. This consists of the usual stamp duty charge up to 12%, plus the 3% surcharge for second homes, plus 2% non-resident stamp duty.
UK inheritance tax
Despite an inheritance tax review, the threshold remains frozen at £325,000 per person (as it has been since 2009).
The residential nil rate band increases as planned from £150,000 to £175,000 per person. This provides extra tax relief when passing on a main UK home to direct descendants but starts to taper once joint assets exceed £2 million.
The good news for expatriates is that overseas property can qualify, provided it is your main home (local inheritance taxes may still apply).
Five things expatriates need to know about UK inheritance tax
UK interest rates
The Budget was preceded by an emergency UK interest rate cut by the Bank of England, from 0.5% to 0.25%. This is the lowest it has ever been, matching the temporary cut made to stabilise the economy in the aftermath of the Brexit vote in 2016.
However, this was surpassed by another emergency cut the following week, leaving the UK interest rate at just 0.1%.
For anyone with a UK tracker or variable rate mortgage, this will be good news… but not for savers. As UK savings, ISAs and deposit accounts continue to struggle to outpace inflation, achieving better returns means investing in ‘riskier’ assets. As always, it is crucial to factor in diversification and your personal appetite for risk when investing.
Six tips for protecting and growing your wealth
While the new tax year brings relatively few changes, these are unusually challenging times, with much uncertainty still ahead as the Brexit clock ticks down. To make sure you are making the most of tax-efficient opportunities, in the UK and your country of residence, take personalised advice from a cross-border specialist.
Arrange a tax planning review
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; individuals should seek personalised advice.