Radical changes announced to UK pensions

We tend to be glued to the TV when the Chancellor of the Exchequer delivers his Budget Speech every March, in a similar way to how we must watch the Eurovision Song Contest or even have a flutter on the Grand National – these are all national pastimes. They all seem to blend into one and are never memorable for any length of time. This year’s budget though had some particular interest and suggested certain changes that could see our futures handled in a very different manner.
So in this March’s budget our Mr Osborne announced/proposed changes to the UK pension system. What he failed to highlight were the tax implications that these changes will bring. I wonder why.
Firstly he proposed that from April 2015 individuals could en-cash all of their UK private pensions. This, in our entire pension history is unheard of! A pension was supposed to be for life – you were supposed to save money for this eventuality and ensure that you were never a burden to the state. What he didn’t mention was the tax implication. Once you have deducted your 25% potentially tax free lump sum, the remainder would be taxed at your highest rate of income tax – so for some up to 45%. Happy days Mr Osborne – as he confidently expects to raise at least £3 billion extra tax from this…at our expense.
He then made it clear that expatriates will have to decide whether they are either in or out of the UK tax system. So how does the UK government decide you are an expat for tax purposes; it is said it will be someone who is no longer a UK resident and resides and pays taxes in another country.
If you are an expatriate you also may be affected by the following changes:
▪ Capital gains tax is to be introduced in the UK in 2015 for non-residents, so if you are an expat and you sell a property in the UK, irrespective as to whether you have been renting it out or not, you will have to pay capital gains tax in the UK. It cannot be claimed as a main residence because you are non-resident in the UK.
▪ The Chancellor has also started looking at scrapping the UK personal income tax allowance for expats, i.e. getting rid of the £10,000 a year earnings limit before you have to start paying income tax. So any expats drawing pension income in the UK – including the State pension – will have to pay tax of at least 20%. This will also be the same for income gained from other sources in the UK by expats.
▪ The Chancellor wants to stop the transfer of final salary pensions and UK government pensions.
Do you really understand the implications of the above? There are ways to protect yourself from the above changes, especially when it comes to pensions, avoiding the personal allowance tax trap could be as straightforward as switching your UK pension into an offshore Qualifying Recognised Overseas Pension Schemes (QROPS). QROPS investors pay income tax on their pension payments based on where they are tax resident, not at UK tax rates.
By Robert Mancera
Robert Mancera is Director of Blacktower Financial Management (International) Limited. 289 355 685
[email protected]
Blacktower Financial Management (International) Limited is licensed by the Financial Services Commission in Gibraltar. Blacktower Financial Management Limited is authorised and regulated by the Financial Conduct Authority in the UK.
The above information was correct at the time of preparation and does not constitute investment advice and you should seek advice from a professional adviser before embarking on any financial planning activity.