October Budget 2024: The Impact for Expats

The October 2024 UK budget brought in several key changes and planning opportunities that have direct implications for British expats, particularly those with financial ties to the UK or plans to return. Here are the main points:

1. Inheritance Tax (IHT) Reforms and Domicile Changes

• Shift from Domicile to Residence: Starting April 6, 2025, UK inheritance tax on worldwide assets will be based on UK residency instead of domicile. This means that expats who have lived in the UK for at least 10 of the past 20 years at the time of their death will be taxed on their worldwide assets. For those not meeting this threshold, only UK assets will be subject to IHT.

• Excluded Property in Trust: Non-UK property assets (excluded property) held in trusts by UK residents may become liable for UK IHT if the individual has been a long-term UK resident, removing the current protections for “excluded property” trusts.

Implications: British expats who are long-term residents in the UK or planning to return could see increased IHT exposure on global assets. Planning to either restructure trust holdings or limit UK residency could potentially help mitigate this impact.

2. Capital Gains Tax (CGT) Adjustments

• Reduction in CGT Exemption: The annual CGT exemption has been further reduced, meaning any gains from UK-based property, investments, or businesses could incur higher tax if sold by UK residents or non-residents alike.
• Non-Resident CGT: British expats are liable for CGT on the sale of UK property, and the tax cut exemption amplifies this impact. Future property or investment disposals may require careful timing and planning to reduce tax exposure.

Implications: Expats could monitor asset appreciation in the UK and consider restructuring or liquidating holdings before a future move back to avoid heightened CGT liabilities.

3. Pension Reforms

• Overseas Transfer Charge: Exemptions from the 25% overseas transfer charge for QROPS (Qualifying Recognised Overseas Pension Schemes) transfers to the EU, EEA, and Gibraltar have been removed.
• Treatment of Inherited Pensions: Inherited pension pots, including QNUPS (Qualifying Non-UK Pension Schemes), will face different tax treatment starting in 2027.
• UK State Pension Increase and Freeze on the “Triple Lock”: The State Pension remains protected by the triple lock, but expats should confirm eligibility for annual increases, especially if residing outside the EU.

Implications: Expats considering pension transfers or future contributions may want to evaluate the benefits of UK pensions versus overseas pension schemes.

4. Income Tax Thresholds

• Threshold Freeze Extension: The personal allowance and tax thresholds remain frozen until 2028, indirectly increasing income tax liabilities due to inflation. This affects expats returning to the UK, as more of their income may fall into higher tax brackets.

Implications: Returning expats might want to plan tax-efficient income structures before repatriating to the UK, possibly leveraging ISAs, overseas investments, or non-resident tax benefits where available.

5. Residency Planning Opportunities

• Long-Term Residency Definition and Reset Period: For inheritance tax purposes, expats who maintain non-UK residency for 10 consecutive years may “reset” their residency status, effectively exempting them from IHT on worldwide assets if they later return to the UK.

Implications: Long-term non-resident British expats with substantial worldwide assets may consider the benefits of remaining outside the UK for a full decade to reduce potential inheritance tax liabilities.

6. Stamp Duty Land Tax (SDLT) Increase for Landlords, Property Investors, and Second-home Buyers

• Higher Surcharge for Non-Primary Residences: The SDLT surcharge increased from 3% to 5% for landlords and second-home buyers, effective immediately.

Implications: This increase will raise acquisition costs, which may discourage property investment. While beneficial for first-time buyers, it may limit rental housing supply.

Summary

For British expats, these changes suggest more intricate planning around inheritance tax, capital gains, residency status and pension treatment.

If you’d like to learn more about these planning opportunities we’d be pleased to discuss your situation in detail. In addition to our team of Financial Planners, our network includes specialists who provide tailored international and cross-border advice on a wide range of topics, from succession and domicile to UK inheritance and capital gains tax.