The UK Chancellor of the Exchequer, George Osborne, delivered his Autumn Statement (?mini budget?) on 5th December. The draft Finance Bill for 2013 was then published on 11th Decembe
The UK Chancellor of the Exchequer, George Osborne, delivered his Autumn Statement (?mini budget?) on 5th December. The draft Finance Bill for 2013 was then published on 11th December.
Our article this week summarises some of the key tax and pension announcements which could affect British expatriates and those returning to live in the UK.
Tax rates and allowances
UK personal allowances are increasing to a higher level than expected (?9,440 instead of ?9,205). However, the top of the basic rate band is being reduced to ?32,010 from ?34,370, which will offset the increase for higher rate taxpayers.
The higher rate band threshold will only increase by 1% in 2014/2015 and 2015/2016, instead of by inflation. Since inflation is expected to exceed 1% (the official target is 2%, though it is often higher), this means that more people will fall into the higher rate band and have higher tax bills.
While the capital gains tax rates will remain at 18% for gains falling within the basic rate band and 28% for higher rate bands, the actual annual tax free exemption will only increase by 1% for 2014/2015 and 2015/2016. Therefore more gains will fall into the higher rate band in future years.
The inheritance tax threshold has been frozen at ?325,000 since 2009. It is now scheduled to increase in 2015/16, but again only by 1% (rounded up to ?329,000) instead of by the rate of inflation as in the past. There is therefore little relief for your heirs.
Statutory Residence Test
The government confirmed that the new Statutory Residence Test, which will determine whether you are liable for income and capital gains tax in the UK or not, will come into effect on 6th April 2013. This is welcome news for expatriates as it provides more certainty, but you still need to take advice to ensure you have your tax position right.
Annual Residential Property Tax
The Finance Bill included draft legislation on this new tax. It affects residential properties valued at over ?2 million and owned by non-natural persons (so for example, properties owned through companies). The proposed annual charges start at ?15,000, increasing to ?140,000 for properties over ?20 million.
If you have UK pension funds you will be affected by many of the changes announced in the Autumn Statement.
From April 2014, the lifetime allowance will drop from ?1.5 million to ?1.25 million.
Transitional protection ? ?Fixed Protection 2014? – will be introduced for those already in excess of this amount or who believe they will be when they choose to take benefits, subject to certain conditions.
Another consultation is proposed regarding a personalised protection to enable investors to continue to contribute as well as protect themselves to a certain degree.
If you think you may be affected by this lower allowance speak to a wealth management firm like Blevins Franks which specialises in providing pension, investment and tax planning advice to British expatriates.
The capped drawdown limit will increase from 100% to 120% of the value of an equivalent annuity. Draft legislation will be published in January 2013. This includes funds held in a Qualifying Recognised Overseas Pension Scheme (QROPS).
While this will bring some measure of relief to retirees in need of a higher income, you need to be aware that taking a higher income stream will increase pressure on the underlying investments and in turn increasing the risk of reducing the underlying funds along with future income levels. You should seek advice on your situation before increasing your income.
The annual ?50,000 allowance is set to drop to ?40,000 from April 2014. This includes both personal and employer contributions. Careful planning is required so as not to incur charges. Those in a defined benefit (final salary) scheme are most likely to be caught out.
UK pension transfers made to a QROPS will be reportable indefinitely (as opposed to 10 years), although still not subject to unauthorised payment charges once the member is outside of the five year non UK residency period. We will not know the effective date until next year, but it could be either be 6th April 2013 or backdated to 11th December 2012.
QROPS providers will have to re-certify to HM Revenue & Customs (HMRC) every five years that they still satisfy the QROPS regulations.
Tax evasion and avoidance
Mr. Osborne promised to continue to crack down on tax evasion and unacceptable tax avoidance.
The introduction of the General Anti-Abuse Rule (GAAR) was pushed back from 1st April 2013 to the date at which Royal Assent will be given to the 2013 Finance Bill, to allow for further consultation on the proposed legislation.
Just before the Autumn Statement, HM Revenue & Customs issued a document called ?Closing in on Tax Evasion? outlining its approach to tackling tax fraud over the coming years. This is a common theme throughout Europe.
We are unlikely to have seen the end of tax rises, and this applies to many European countries, not just to the UK. For peace of mind that you are protecting your wealth from tax as much as possible, wherever you live, speak to an established tax planning and wealth management firm like Blevins Franks which specialises in providing expert tax advice to British expatriates.
14 December 2012
The 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 must take personalised advice.