In his eighth Budget as Chancellor of the Exchequer, George Osborne announced very few changes that are likely to affect expatriates on March 16 2016.
The Personal Allowance is increasing to £11,500 in 2017/2018 (it will be £11,000 per person in 2016/2017), and the higher rate band will apply to income in excess of £45,000 in 2017/2018.
One of the biggest changes announced that will affect individuals is actually no change at all: the Capital Gains Tax rate is to decrease to 10% where gains fall into the basic rate band, and 20% where such gains fall into the higher rate band. However, this will not apply to non-residents of the UK, who do not generally pay UK Capital Gains Tax on such gains in any case (unless disposing of assets used in a trade in the UK). That said, if you leave the UK and dispose of UK assets you already own at departure and return to live in the UK within five complete and consecutive UK tax years, this will affect you, as such gains will become taxable in full in the UK tax year in which you return to the UK.
Non-UK residents are still subject to UK Capital Gains Tax on disposal of UK residential real estate, and the rates for such disposals have not changed – the gain is taxable at 18% where it falls into the basic rate band, and 28% where such gains fall into the higher rate band.
The good news is that, where the property is held personally or in trust, tax only applies on the gain accruing since April 6 2015. For UK residential properties held within companies, the date from which the gain is taxable varies and advice should be sought if considering selling such a property.
ISA contributions are increasing again, to £20,000 from April 6 2017, although as non-UK residents can no longer contribute to an ISA, this should not be relevant to expatriates.
From April 2018, Class 2 National Insurance Contributions will be abolished. These are usually paid by the self-employed in the UK, but in certain circumstances can be paid voluntarily by individuals working or self-employed outside the UK, so that they can ‘top-up’ their contributions to the UK state pension. These are much cheaper than Class 3 voluntary contributions which expatriates often pay so that they can increase their entitlement to the UK state pension if they have not worked enough years before they have left the UK to entitle them to the maximum UK state pension.
At around one-third of the cost of Class 3 Contributions, this saved many who had left the UK money. However, with the abolition for the self-employed, it appears likely that they will be abolished for those outside the UK wishing to top-up their pensions as well, although the full details have not been released as yet.
The headline grabber was the tax on sugary drinks, to apply from 2018, but most of the changes that will affect non-UK residents from April 6 2016 were announced previously.
These changes include:
▪ Abolition of the tax credit on dividends, introduction of the £5,000 dividend exemption and the tax rates of 7.5%, 32.5% and 38.1% on dividends. Where the only income derived from UK sources are dividends, interest and the UK state pension however, it should still be possible for such income to not be taxed in the UK.
▪ Payment of UK bank interest gross of tax (so this will no longer have to be reclaimed by expatriates where such income is only taxable in the country of residence).
▪ UK inheritance tax on UK residential property held in offshore companies.
▪ Abolition of ‘wear and tear’ allowances and mortgage interest relief in excess of the basic rate of tax on rental properties.
▪ An additional levy of 3% of Stamp Duty Land Tax where a second property is being acquired.
▪ Changes to the non-domicile rules.
So this Budget has not made many significant changes, but there are big changes applying to those who have moved or intend to move from April 6 2016 onwards. It is always a good idea to take advice when moving country, but if you have concerns over how these changes will affect you, you should take advice sooner rather than later.
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.
By Gavin Scott
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Gavin Scott, Senior Partner of Blevins Franks, has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers. | www.blevinsfranks.com