The UK Spring Budget – how could it affect expatriates?

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13.03.24
UK Budget

The UK’s spring budget included a number of tax announcements. The key news for British expatriates was the abolishment of the UK non-domicile status, which in some cases could influence their inheritance tax liability.

UK Chancellor, Jeremy Hunt, delivered his Spring Budget 2024 to parliament on 6 March. Expected to be his last budget before the next General Election, it included various changes to taxation.   Here we summarise the announcements that may affect UK nationals living abroad.

UK non-domiciled status abolished

The biggest announcement of this year’s budget was the abolishment of the UK’s non-domiciled (‘non-dom’) status. This reform still has to go through the consultation process and is not expected to come into effect until April 2025, so there may be developments along the way.

Much of the reform affects foreign nationals living in the UK and their UK income and capital gains tax liabilities. But the domicile regime famously also has a significant impact on an individual’s liability to UK inheritance tax (IHT) and this has been a major issue and complexity for British expatriates.

The UK government now plans to move away from these non-domiciled rules and replace them with a residence-based regime for inheritance tax.  It plans to consult on a 10-year exemption period for new arrivals in the UK as well as a 10-year ‘tail-provision’ for those who leave the UK and become non-resident.

In the meantime, the government confirmed that the treatment of non-UK assets settled into a trust by a non-UK domiciled settlor prior to April 2025 will not change.

Other tax changes that may affect expatriates

  • The higher rate of capital gains tax for residential property gains will reduce from 28% to 24% with effect from 6 April 2024. The lower rate will remain at 18% for any gains that fall within an individual’s basic rate band.
    
    
  • The Furnished Holiday Lettings tax regime will be abolished, eliminating the tax advantage for landlords who let out short-term furnished holiday properties over those who let out residential properties to longer-term tenants. This will take effect from April 2025.
    
    
  • The 0% band for the starting rate for savings income will be frozen at its current level of £5,000 for 2024 to 2025.
    
    
  • The Spring Finance Bill 2024 will include legislation to restrict the scope of agricultural property relief and woodlands relief to property in the UK. Property located in the European Economic Area (EEA), Channel Islands and Isle of Man will be treated the same as other property located outside the UK. The changes will take effect from 6 April 2024.

Other budget announcements

  • The main rate of primary Class 1 National Insurance contributions will be cut by 2 percentage points, from 10% to 8%, from 6 April 2024. Class 4 National Insurance contributions for self-employed individuals will be cut by the same amount, from 8% to 6%.
    
    
  • An additional Individual Savings Account (ISA) with a £5,000 allowance was announced. The government will consult on the details, but it will be in addition to the £20,000 that can be subscribed into an ISA and will “provide a new tax-free savings opportunity for people to invest in the UK, while supporting UK companies” (although the details of that are yet to be confirmed).
    
    
  • National Savings & Investments (NS&I) will launch a product in April 2024 to offer consumers a guaranteed interest rate, fixed for three years. This product will increase savings opportunities available to UK residents.
    
    
  • From 6 March 2024, the rules for claiming First-Time Buyers’ Relief from Stamp Duty Land Tax in England and Northern Ireland will be amended so that individuals buying a leasehold residential property through a nominee or bare trustee will be able to claim First-Time Buyers’ Relief, including victims of domestic abuse.
    
    
  • Measures will be introduced to ensure that UK-resident individuals cannot bypass anti-avoidance legislation, the Transfer of Assets Abroad provisions, by using a company to transfer assets offshore in order to avoid tax.
    
    
  • A consultation will seek views on the implementation of the Organisation for Economic Co-operation and Development’s (OECD) amendments to the Common Reporting Standard (CRS2), the international tax transparency regime for the automatic exchange of information on financial accounts.

Tax allowances remain frozen

Many of the UK’s tax allowances have been frozen since April 2021, instead of increasing annually with the cost of living as previously.  Importantly, this includes the income tax personal allowance and higher rate threshold. As announced in previous budgets, the freeze is scheduled to last until at least April 2026 – and there was nothing in this 2024 spring budget to change this.

Freezing allowances has a similar effect to raising taxes for the government, just more subtly – hence often referred to as ‘stealth taxes’.   As incomes and assets increase with inflation while allowances remain static, many more people pay more tax than previously, an effect known as ‘fiscal drag’.  The personal impact for taxpayers increases considerably when freezing is accompanied by high inflation.

In March 2023, the UK’s Office for Budget Responsibility (OBR) calculated that freezing the personal allowances, additional rate thresholds and primary thresholds and lower profits limit for National Insurance Contributions would increase tax receipts by a combined £29.3 billion a year.

And now, following the 2024 budget, the Institute for Fiscal Studies (IFS) illustrated that the National Insurance cut, though very welcome, would not compensate for the impact of the other tax measures introduced over the government’s term in office. Households will be worse off at the next election than they were at the start of this parliament.

The inheritance tax (IHT) nil rate band has been frozen even longer than the others – at £325,000 since 2008 – while the residence nil rate band remains at its 2021 level until at least 2026.  This pushes more families into the IHT net and increases how much of their inheritance is lost to tax.

2023/2024 tax allowance reductions

The UK’s Autumn Statement 2022 included three cuts to tax allowances and thresholds designed to earn more tax from higher earners. With effect from April 2023 –

  • The income tax additional rate threshold was reduced from £150,000 to £125,140.
    
    
  • The capital gains tax annual exempt amount was halved from £12,300 to £6,000 – and will be halved again to £3,000 from 6 April 2024.
    
    
  • Likewise, the dividend allowance was cut from £2,000 to £1,000 last year and will be cut to £500 from April.

Budgets and tax planning

British expatriates who retain assets in the UK could be impacted by some of these tax measures.   If you may be affected, seek personalised cross-border advice for clarification and to establish if there is anything you can do to improve your position.

In any case, whether in the UK or your country of residence, budgets are a good prompt to review your tax planning to ensure it is up to date, suitable for the country you reside in, and that you are not missing out on any opportunities to save tax for yourself or your heirs. Blevins Franks has a long history and a well-established reputation as the leading cross-border wealth management adviser – helping our clients to minimise their tax bill legitimately, providing peace of mind to them and their families.

Get in touch with us today.

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.

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