9th March 2017 saw the final UK Spring Budget as the announcements now move to the Autumn. As ever there were a number of measures that will affect expats, including a surprise regarding pensions. This article is a brief overview of some of the main points with particular reference to any changes that have relevance to those living outside of the UK.
Offshore Pension Transfers
There has been a booming market in expats moving UK pensions to an offshore pension arrangement called a QROPS (Qualifying Recognised Overseas Pension Scheme) as these have tax advantages for some people. They are not suitable for everyone, being best for those who do not intend to return to live in the UK or retire there.
This budget announced an immediate change. Any requests to transfer made on or after 9th March 2017 will be subject to a tax charge of 25%. A QROPS that is already in place will not be affected. The exceptions to this appear to be where both the individual and the pension savings are in the same country, both in the EEA (European Economic Area). Popular QROPS jurisdictions include Gibraltar and Malta, so only someone tax resident in one of those countries will be able to transfer without this hefty tax charge in future.
The option to transfer to a SIPP (Self Invested Personal Pension) remains an option and this is a UK onshore pension arrangement with substantial investment options. As ever, professional and qualified advice should be taken before transferring any pension in line with Financial Conduct Authority guidance.
Income Tax
The Personal Allowance threshold will increase from £11,500 from April 2017 and the plan to increase it to £12,500 by 2020 was reiterated.
Everyone is eligible for the Personal Allowance, whether resident in the UK or overseas, so it is particularly relevant to people who own and let property.
National Insurance
A change in how the self-employed in the UK will taxed was also announced, as National Insurance is really just tax by another name. Currently the self-employed only pay a relatively small Class 2 contribution on earnings up to £8,059 and then at 9% up to £43,000.
This will change with effect from April 2018 after which time they will pay 10% and then 11% from April 2019. Class 2 contributions, including those paid by expats on a voluntary basis to build entitlement to the UK State Pension, will be abolished from April 2018, as previously announced.
UPDATE 15/03/17 It has just been announced that as the NI increases for the self-employed break a Conservative Party Manifesto pledge they will not be implemented as stated in the budget. It appears that the increases would be put to Parliament in the Autumn instead.
Inheritance Tax
No change to the Inheritance Tax allowance which remains at £325,000 year and the gift allowances are also unchanged.
A previously announced change will come into effect on 6th April 2017. An additional £100,000 of allowance will be introduced which can be used to reduce the duty paid on a main home – but only if the property is valued at more than £350,000 and less than £2million.
By 2020 this extra allowance is set to rise to £175,000, meaning a couple could pass on a property worth up to £1million without any inheritance tax being payable.
UK Pension Contributions
Pensions tax relief is unchanged for those who have yet to start drawing on their plans but the MPAA (Money Purchase Annual Allowance) is being cut to just £4,000 a year. This allows people who are UK resident and who have taken some benefits from their UK pension to add money back to it without a tax charge applying. This is £10,000 for the 2016/17 tax year, and it was announced that it will reduce further to just £4,000 from 6th April 2017.
With all the changes to pension contributions in the last few years it is clear that the current UK government is pushing people towards ISAs, rather than pensions plans.
Other points
There will be a reduction in the dividend allowance £5,000 to £2,000 from April 2018 which will affect the owners of smaller companies who take income as dividends as a way or reducing the overall tax bill. This also affects people with directly held stocks and share in the UK outside of a tax-efficient arrangement.
A further tightening of the rules regarding tax avoidance arrangements, particularly for professionals who promote such schemes.
I have read through the budget (all 68 pages of it so you don’t have to!) and there is nothing specifically related to taxing expats, apart from the afore-mentioned QROPS transfers, so that’s good news.
I write articles such as this one as part of the holistic personal financial planning service that I provide to expats. Should you have any queries on the latest budget, or would like professional and independent advice on any other financial planning issues, please do not hesitate to contact me. keren@holbornassets.com
