How does the latest UK Budget affect expatriates when it comes to personal tax, savings, property and pensions, and what will change next April?
How does the latest UK Budget affect expatriates when it comes to personal tax, savings, property and pensions, and what will change next April?
Phillip Hammond’s second Budget – the first for the reformed government following this summer’s snap election – was widely seen as fairly subdued. But was there anything of note for Britons living abroad?
Expatriates who earn UK income may benefit from a slight increase in the personal allowance. From 6th April you can earn £11,850 before paying UK tax (formerly £11,500), representing an extra £70 a year. Unlike the previous Chancellor, Hammond has made no suggestion of limiting this tax relief for non-resident British nationals in the future.
For the first time, the marriage allowance will be extended to widows and widowers, enabling 10% of the personal allowance to transfer to the surviving partner. Effective from 29th November, claims can be backdated up to four years.
Meanwhile, higher rate taxpayers are set to be £340 better off a year, as the upper threshold for 40% tax rates increases in April from £45,001 to £46,350 (Scotland remains at £43,000).
These changes are in line with the government’s pledge to increase basic rate to £12,500 and the higher rate threshold to £50,000 by 2020.
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The band of UK savings income that can be earned tax-free stays the same at £5,000, and the annual ISA subscription limit also remains unchanged at £20,000.
However, expatriates need to remember that investments like ISAs lose their tax-efficient benefits once you are no longer UK resident. Not only are non-residents ineligible to open and save into ISAs, any interest earned may become liable to taxation in your country of residence. You should instead explore investment alternatives to suit your unique circumstances and aims.
See more about investment options for expatriates
Despite speculation, the Budget made no changes to pension tax relief or transfers.
The State Pension, however, will increase 3% in line with inflation – as defined by the Consumer Price Index (CPI) – from April. This represents an extra £191 a year for those who started drawing benefits before 6 April 2015; £250 for others. It has already been established that British expatriates in the EU will continue to receive these cost-of-living increases beyond Brexit. Find out more about Brexit’s impact on expatrates
The lifetime allowance will also increase with inflation. This means you can accrue an extra £30,000 on top of the £1 million in pension benefits from April 2018 without incurring 25% or 55% tax penalties.
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The biggest Budget headline was the immediate stamp duty relief for first-time buyers – and those buying in high value areas like London – of up to £300,000 on properties under £500,000.
A 3% stamp duty surcharge remains in place for the purchase of second and subsequent homes, although this now no longer applies where ownership shifts, for example, as a result of divorce or re-mortgaging. Expatriates should note that overseas property counts here, so additional stamp duty may be payable if you own your home abroad and buy another in Britain, even if it is your only UK property.
However, as housing is a devolved area, different stamp duty rules usually apply in Scotland, Wales and Northern Ireland.
If you retain a UK property that is unoccupied, you could see your council tax rates doubling next year. In a bid to discourage empty properties, Hammond has handed local authorities the option to increase council tax premiums by 100% on properties vacant for two years or more.
Meanwhile, the annual capital gains tax exemption will track inflation by increasing to £11,700 from 2018 (£5,850 for most trusts).
However, non-residents who own interest in commercial UK property are set to be subject to tax on gain for the first time. Currently, ‘non-residential capital gains tax’ only applies to residential property (on gains since 5th April 2016) but is due to be charged on the sale of any UK real estate or land, whether owned directly or indirectly, from April 2019 (excluding Scotland).
With these extra measures, it is worth reassessing whether holding UK property is the most tax- and cost-efficient option for your capital.
See three myths about investing in UK property
Already on course to change in 2018
While this Budget introduced few changes, proposals from previous Budgets that could impact expatriates are set to take effect from 6th April:
- The main residence allowance for inheritance tax is due to increase to £125,000 per person (from £100,000), providing extra relief when passing on a main home to direct descendants.
- Reduction in buy-to-let tax relief will continue. Before April 2017, landlords were able to claim tax relief on their monthly interest repayments at the top level of tax they pay – a tax saving of 45% for higher earners. From 6 April 2018, landlords can only claim 50% of the mortgage interest relief against the income (compared to 75% this year, eventually whittling down to zero by 2020) plus 20% as a tax credit.
- The tax-free allowance for dividends will fall from £5,000 to £2,000. While this could affect those with large portfolios of shares, non-UK residents could still receive dividends tax-free in the UK through the ‘disregarded income’ regime. There are, however, more suitable options for expatriates to invest tax-efficiently.
The UK economy
As there was not much in the way of handouts or cash-grabs in this Budget, perhaps the biggest outcome was the sharp downgrading of the UK economy’s growth forecast. Falling to 1.5% from the 2% forecast in March, it is the largest adjustment since the financial crisis, expected to drop to 1.3% post-Brexit before reaching just 1.6% in 2022.
In this climate of sluggish growth and Brexit uncertainty, it is a good idea to seek specialist, personalised advice, especially if you are concerned about any of the Budget measures. A specialist in cross-border taxation can guide you on the interaction between UK and taxation in your country of residence, and the tax planning opportunities available.
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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.
