Yesterday's UK Budget announcement certainly gave us a lot to consider, with the abolishment of the Lifetime Allowance being the headliner.
We look at what this statement means for Expats and Non-Residents.
Welcome to Skybound Wealth’s UK Autumn Statement Special Edition of the The Expat Investor Podcast, I’m Tom Pewtress – Head Of Global Partners, today I will be joined by one of our Managing Partners Edmund Teasdale to take a closer look at what this statement means for Expats and Non-Residents.
The Autumn Statement 2022 comes at a time of significant economic challenge for the UK and global economies. Putin’s war in Ukraine has contributed to a surge in energy prices, driving high inflation across the world. Central banks are raising interest rates to get inflation under control, which has pushed up the cost of borrowing for families, businesses and governments. Growth is slowing and the International Monetary Fund expects a third of the global economy to fall into recession this year or next.
This comes against a backdrop of higher levels of government debt due to the economic impacts of the COVID-19 pandemic and current energy crisis. Debt interest spending is now expected to reach a record £120.4 billion this year. And it’s these factors that have contributed to a significant gap opening between the funds the government receives in revenue and its spending.
It has been made clear that the UK government’s priorities are to be stability, growth and public services. Economic stability relies on fiscal sustainability – and the Autumn Statement sets out the government’s plan to ensure that national debt falls as a proportion of the economy over the medium term.
The last time we had a commentary from the UK Government on the topic of a budget was a little over a month ago and well – that was a disaster – crashing the economy, the Pound, and resulting in the job loss of the Chancellor and Prime Minister.
So, we have cut through the 70 odd pages to get an understanding of what has been announced this time.
Edmund, I will welcome you at this point – thanks for joining me today.
No worries. good to be here. Thanks for having me.
As a Managing Partner and someone who works very closely with the British Expat population, this is no doubt something that you were eager to see. So, what caught your eye in this budget?
Well, we saw some good news for UK Pensions. The Triple Lock will remain. This is something that has been debated at large over the recent years.
And just for the record Ed, and for the listeners at home, what is the Triple Lock?
For anyone unclear, under the triple lock, the state pension will increase each year in line with whichever of these three measures is highest:
The State Pension will be increased, in line with inflation from April 2023 by 10.1%
Some additional benefits, of a few hundred pounds a year, will be payable to those on means-tested benefits.
Wow, ok so despite the raging inflation this some good news for state pensions.
How about what people are calling Stealth Tax like Inheritance Tax?
Well, the existing nil rate band of £325,000 for 2022/23 was already frozen until April 2026, but this has now been frozen for a further 2 years. The nil rate band is a key element of financial planning for our advisers at Skybound when talking to British expats as we want to ensure our inter-generational plans are bullet proof and as tax-efficient as possible. It has been thought for many years that this nil rate band would increase due to inflation, families naturally gathering greater wealth through their lifetimes due to things like inflation and increased wages, it would make sense for the nil rate band to follow this, but this is not the case yet. Inheritance tax really does need careful planning to navigate this landscape as its important not to be paying unnecessary taxes.
Something I thought that was interesting, Hunt says he is accepting a recommendation from the Low Pay Commission and increasing the national living wage by 9.7% next year but the personal allowance for income is frozen until 2028 will remain the same, which in real terms, means millions of people will end up paying more in tax as the tax bands will stay the same while incomes increase. Even small annual increases in income will make a difference here and this is a popular move by the government to look as if they aren’t taking anything away although people will have less in their pay packets.
A clever move really. What we did see though is higher earners being taxed more. The additional tax bracket was reduced from £150,000 to £125,000. Meaning anyone earning in excess of £125,000 will now be paying 45% on those pounds and that income.
Ok, let’s take a look at the tax that impacts direct invests. This is certainly applicable for anyone who may be moving or returning to the UK in the near future with direct assets.
What’s the word here Ed?
Well, a small change in the form of the Dividend Allowance – this has been reduced from £2,000 to £1,000 as of April 2023 and a further reduction in April 2024 down to only £500.
What was significant though was the reduction to Capital Gains exemption. Currently £12,300 per person – this has been cut to only £6000 per annum for 2023/24 and then from 2024 the exemption has been cut to £3000 per annum. This is over a 75% cut in allowances. It makes it very important to be reviewing any direct holdings before going home as there plenty of ways to consider to potentially help mitigate these taxes.
My goodness – surely that’s the headline news here then Ed. A 75% cut in allowance almost seems unreasonable! In the past capital gains allowances have been significantly underused, but with good planning these allowances should be maximised, that opportunity seems to be disappearing. It’s probably worth noting, it you were thinking about selling a UK property which is not a primary residence, better to do so soon rather than later.
One thing that did stay the same was Stamp Duty and this will remain unchanged until 2025. So, if you are thinking of buying UK property probably best to do so before then.
The other 2 major notes from the statement were,
The Energy Price Guarantee (EPG) will be maintained through the winter, limiting typical energy bills to £2,500 per year. From April 2023 the EPG will rise to £3,000.
There was an announcement of £3.3bn a year ‘extra’ for the NHS as part of the total budget, albeit much of this will be inflationary contributions and it isn’t entirely clear where the extra is coming from.
One thing that did catch my eye though was:
To be honest I was under the impression that electric cars did not pay this tax due to the emission levels being 0 compared petrol and diesel. So, to change it just to make it fairer seems an odd statement to me – but that its not for me to judge.
For British expats living abroad, there are no fundamental changes to how you will be affected by UK tax or financial matters – what will be impacted is the rate at which you pay tax on both your UK income and any UK property or shares that you sell from April 2023.
The UK tax residents who will be mostly affected by these changes are the middle earners at the upper end of the basic tax bracket and shareholders of UK companies who draw income from dividends who have seen their allowance halved.
Since Liz Truss and the ex-chancellor managed to rock confidence and dimmish the value of the Pound, Rishi seems to be bringing confidence back to the market with these messages of stability and the pound has rallied from its lows of 1.07 to roughly 1.18 today.
Ed, it’s been a pleasure to have you onboard today. Would you like to leave the show with a final message?
“I think the key takeaway from this is it’s always important that before considering repatriation, always make sure you consult with a qualified financial planner, and taking advice as in a lot of cases, these tax pitfalls can, in a lot of cases can be mitigated through forward planning.”
Thanks for joining and listening today. Until next time.
This was recorded on the 22/11/2022 and all information was correct at the time of recording. This podcast is for educational purposes only and is not a personal recommendation. If you’re unsure what’s right for you, you should seek advice. Past performance isn’t a guide to the future, and investments rise and fall in value so you could get back less that you invest. Thanks for listening, goodbye.
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