The UK Chancellor of the Exchequer, George Osborne, delivered his Budget to Parliament on March 19. By far the biggest surprise was the announcement of a complete overhaul to the pension regime.
Growth, the deficit and borrowing were at the heart of Mr Osborne’s speech, with the Chancellor making it clear this was a budget to support a resilient economy with savers at the centre.
Here is a summary of the issues that may affect British expatriates. Since there are a few issues to cover, I will continue this article next week.
Personal allowances increase from £9,440 to £10,000 for the 2014/15 tax year, and again to £10,500 for 2015/16. As previously announced, the higher rate threshold also increases to £41,865 from April 6 2014, and by a further 1% a year later.
The Government will consult on whether to withdraw the personal allowance from non-UK residents, except those with “strong economic connections in the UK”, as is the case with most EU countries.
As previously announced, married couples and civil partners will be able to transfer up to 10% of their personal allowance to their partner. This may apply to expatriate couples if one of you has UK source income (such as government service pension or rental income) and the other does not.
On July 1 2014, cash and shares ISAs will merge into a “New ISA” or “NISA”, with an annual limit of £15,000. While this is beneficial to UK residents, expatriates will still be liable to tax in their country of residence on interest, dividends and gains, arising within ISA wrappers.
The amounts that can be invested in premium bonds will increase from £30,000 to £40,000 in 2014/2015 and to £50,000 from 2015/2016. The number of £1 million prizes will also increase. Winners of prizes resident outside the UK may be liable to tax in their country of residence.
Several measures were introduced in one of the largest reforms of the defined contribution pension system since 1921. The government decided that the existing pension regime perpetuated an unjust system for taxpayers who have “done the right thing” and saved all their lives. Pension holders are now being granted a far wider range of access to their funds after retirement.
The following changes came into effect on 27 March 2014:
▪ A reduction in the minimum income requirement for accessing flexible drawdown from £20,000 to £12,000.
▪ An increase in the capped drawdown limit from 120% to 150% of equivalent annuity.
▪ An increase in the total pension wealth people can have before they are no longer entitled to receive lump sums under trivial commutation rules from £18,000 to £30,000.
▪ An increase to the small pension pots lump sum limit from £2,000 to £10,000, and the number of pots that can be taken as a lump sum increased to three.
A key change will come into effect from April 6 2015. Members of defined contribution schemes will have much more flexibility in how they deal with their pension on retirement. The requirement to buy an annuity has already been removed and the 25% tax-free lump sum will continue to be available, but from April 6 2015 retirees will have three choices for the balance of their pension:
1) Withdraw their entire pension fund on retirement, with the withdrawal to be taxed at their marginal income tax rates, rather than 55% as currently the case.
2) Purchase an annuity.
3) Flexible drawdown benefits over time.
Remember, it is essential that you consider local tax in your country of residence.
A consultation has been launched regarding transferring out of public and private Defined Benefit Schemes into Defined Contributions Schemes.
Consideration will be given to allowing individuals aged 75 and over to claim tax relief on pension contributions.
The Government will also consult on increasing the minimum pension age so that it remains 10 years below state pension age.
HM Revenue & Customs has been given new powers to help prevent pension liberation schemes being registered, and to make it easier to de-register such schemes. This measure is designed to catch schemes which allow members to access their pension fund before reaching retirement, which HMRC views as pension fraud.
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