Tax And Pensions Following The UK Election

27.05.15

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

Now that the dust has settled on the UK elections, what does the result mean for tax and pensions? UK taxation continues to affect British expatriates if they have UK source income, or if they return to the UK in future.

Now that the dust has settled on the UK elections, what does the result mean for tax and pensions?

UK taxation continues to affect British expatriates living here if they have UK source income, or if they return to the UK in future.

For the moment we can only speculate on what the future will hold based on the Conservative Party’s election manifesto. However we will not have to wait long to see what they follow through with, since Chancellor George Osborne has announced a new budget on 8th July. Having a second budget in one year is unusual, but Mr Osborne said he was making the move to deliver on the commitments they had made.

Income tax

Before the election, the Conservatives promised a “five-year tax lock”. This means that they will not increase income tax, national insurance or Value Added Tax (VAT) over the whole parliamentary term. This pledge was then included in the Queen’s Speech on 27th May.

This does not necessarily mean the legislation could not be overturned under emergency measures. Income tax thresholds could also potentially change, resulting in people paying more tax.

They also plan to increase the personal allowance from £10,600 to £12,500 by 2020, and raise the threshold for the 40% tax rate from £42,386 to £50,000 by 2020. According to HM Revenue & Customs, since Prime Minister David Cameron took office in 2010 the number of people paying 40% tax increased from 3 million to 4.48 million.

These commitments would need to be funded somehow. We can presume that the government will continue to crack down on tax evasion and aggressive tax avoidance, and, as they previously said, ensure that “that those that can afford to pay the most do”. They are aiming to raise an additional £5 billion through continuing to tackle these issues.

No mansion tax

The Labour Party had proposed to introduce a ‘mansion tax’ on properties valued at over £2 million. This was expected to affect around 100,000 homeowners, but, at least for now, this threat has been removed.

 Inheritance tax

Inheritance tax continues to impact British almost anywhere in world, even if they have been non-UK resident for some time.

The Conservatives’ pledge to introduce a new main residence allowance of £175,000 per individual is therefore welcome news for expatriates. This allowance will be added to the standard nil rate band of £325,000, and will also be transferable from one spouse/civil partner to the other if not used on the first death.

A couple will therefore have a total potential tax free threshold of £1 million, though this only applies where the family home is passed onto children or grandchildren. The main home allowance will also be capped, so that those with assets worth over £2 million receive a smaller allowance, and those with £2.35 million do not benefit at all.

This concession was not included in the Queen’s Speech, but may still be included in the July budget.

Pensions

In order to fund the higher inheritance tax allowance, the government proposes restricting tax relief on pension contributions for those earning over £150,000.

As already scheduled, the lifetime allowance will be cut from £1.25 million to £1 million from April 2016. Large penalties arise on the excess when benefits come into payment.

The new pension freedom will remain in place. While we may never know whether a Labour government would have undone some of the changes introduced under the previous administration, we can now expect more on the themes of flexibility and personal accountability.

The government had announced in March that it would look at ways to allow greater flexibility in the way annuities are offered, and that might include the ability to ‘sell’ one for a cash sum. The new pensions minister, Ros Altmann, has been an outspoken critic of annuities and welcomed the plan when announced by her predecessor Steve Webb.

Ms Altmann is a pensions and retirement policy expert, with considerable experience in the industry, and her appointment has been welcomed, including by the Qualifying Recognised Overseas Pension Schemes (QROPS) industry. Non-EU QROPS are still waiting to find out if and when they can offer the new UK pension freedom. She is also expected to review the quality of advice given to expatriates, to ensure it is of the same level as that given by UK regulated advisers.

We now await the July budget to find out if the above proposals go ahead and how. Expatriates with cross-border interests need to take both the UK and local tax rules in your country of residence, and the interaction between them, into account to establish what their liabilities are in each country and what tax planning would be effective for them.

 25 May 2015, updated 29 May 2015

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.

 

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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