The Chancellor’s second budget of the year was notably lacking any significant changes to Qualifying Recognised Overseas Pension Schemes (QROPS), pension tax relief, capital gains tax and inheritance tax. Instead, the plans focus heavily on post-Covid economic recovery for the UK.
This comes as little surprise after the UK government had already announced a freeze on the pensions ‘triple lock’ and a rise in National Insurance Contributions (NIC) only a month before the October budget was released.
In this article, we look at the UK tax rates for income, capital gains, pensions and inheritance. This is a good prompt for you to consider if your money is structured tax efficiently.
Income tax and National Insurance contributions
Chancellor Rishi Sunak did not announce any changes to the personal allowances or applicable tax rates, which will remain frozen up to, and including, the 2025/26 tax year.
This means that the personal allowance will stay at £12,570, and the higher rate threshold at £50,270.
In September, the UK government announced a 1.25% rise in NIC and dividend tax, to be introduced from April 6, 2022. This is to help tackle the record-high NHS waiting lists and the increased expense of social care due to the pandemic. As of the 2023/24 tax year, the additional NIC will stand apart on wage slips to become a ‘Health and Social Care Levy’.
Savings and investments
The Autumn Budget did not include any changes to taxation of savings and investments. The tax-free allowance for income earned on UK savings remains at £5,000, with the annual ISA subscription limit at £20,000 (£9,000 per child for Junior ISAs).
Note that UK tax-free investments, such as ISAs, generally become taxable when you become resident in Portugal. It is advisable to take cross-border advice before your tax residency changes to ensure you are aware of all options available and can structure your assets and investments in the most tax-efficient way.
If you are already living here, a locally based financial adviser can still help you take advantage of compliant opportunities to improve the tax efficiency of your assets.
Capital gains tax (CGT)
The anticipated alignment of capital gains tax rates with income tax rates did not materialise and there were no changes to CGT.
Capital gains from the sale of non-real estate assets remains set at 10% for basic rate taxpayers, and 20% for higher and additional rate taxpayers. For property gains, the rates remain 18% or 28%.
A positive change to come from the budget is an immediate extension to the 30-day allotted period in which individuals must calculate, report, and pay capital gains tax derived from residential property transactions. This window has now doubled to 60 days to help prevent unsuspecting homebuyers being fined.
Annual allowance: The annual allowance for pensions remains set at £40,000, as it has been since the 2016/17 tax year. Similarly, ‘threshold income’ remains at £200,000 and ‘adjusted income’ at £240,000 for 2022/23.
Lifetime allowance (LTA): The LTA for pensions remains at £1,073,100 for the 2022/23 tax year. As originally announced in the Spring Budget, this is frozen until 2025/26.
QROPS/Overseas transfer charges: The budget did not include any changes to Qualifying Recognised Overseas Pension Schemes (QROPS). This is good news for expatriates looking to move their pension out of the UK as the 25% ‘overseas transfer charge’ continues to only apply to transfers outside the EU/EEA, for the time being at least.
Inheritance tax (IHT)
Aside from the residential nil-rate band (RNRB) introduced in 2017 to provide extra tax relief against the value of the family home, the tax-free allowance ‘nil-rate band’ of £325,000 has remained unchanged since 2009. As announced in the Spring Budget, this freeze will continue for five more years, until 2025/26.
Will the budget impact you?
While there was some concern that the Chancellor could announce more tax rises, the UK October budget focussed on economic recovery after the strain caused by the pandemic. Hopefully 2022 will not introduce more UK tax rises, after those announced in September, but the lack of tax reforms in this budget could be seen as a window of opportunity for you to structure your assets and wealth in the most tax-efficient way possible.
If you are already resident in Portugal, most of your income is subject to local, rather than UK, taxation. However, if you still have assets and receive income in the UK, including pensions, you do need to pay attention to any UK tax reforms and understand how they affect you.
Receiving integrated, personal advice from a cross-border specialist with an expert level understanding of both the UK and Portuguese tax regimes will help you to mitigate any negative impact from unexpected changes that may arise.
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.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
By Adrian Hook
Adrian Hook is a Partner of Blevins Franks in Portugal and has been providing holistic financial planning advice to UK nationals in the Algarve since 2008. He holds the Diploma for Financial Advisers (DipFA) and is a member of the London Institute of Banking and Finance (LIBF).