Here we are again with another Budget and don’t they seem to come around fast?
Chancellor of the Exchequer, Jeremy Hunt has been in the role since October of last year and while he issued an Autumn Statement on 17th November 2022, he has had his feet under the big desk for a while now so should be in a better position to take economic steps for the benefit of the UK public.
This article is a brief overview of some of the main points with particular reference to any changes that have particular relevance to those living outside of the UK and especially in the GCC. The UK press will cover many points in detail but many of the points will not be directly relevant to expats so this article focuses on the points that could affect us.
The UK still has a cost of living crisis and the official inflation figure is 10%, a 40 year high. The price rises are being felt, as are the increased mortgage repayments. Salary increases are below inflation, energy prices are still high, and many people could do with some government support.
Interestingly, US inflation has fallen from its peak, from 9.1% to around 6% yesterday. Average European inflation is at 8.5%.
With a consensus that the UK could still enter into recession, the challenge is that expansionary spending could damage the steps being taken to try and keep a lid on further inflation.
As has become common in recent years, many of the announcements were trailed and leaked to the media as we there seem to be policy by feedback these days. We had been told that there would be support for working parents, an extension of the energy price cap, and an increase in the pension Lifetime Allowance.
Read on for a summary of the major points, and especially anything that affects expats
The Chancellor claims the UK economy is on the right track and that the UK will not enter a “technical recession” this year and that inflation and interest rates will fall. This is declared a Budget for growth and Hunt has stated that UK inflation will fall to 2.9% by the end of the year. We shall see.
The OBR (Office of Budget Responsibility) expected the UK economy to enter a recession in 2022 and would contract in 2023. Figures are better than expected and unemployment rate is anticipated to remain low.
It is worth explaining that a “technical recession” happens if the economy shrinks for two seasons, that is two period of three months in a row. That means it is possible to avoid the technical definition even if the economy is doing badly if it shrinks in the spring and autumn but rises in the summer. Semantics at play here to a large extent.
This table explains:
Debt interest spending in the financial year to January 2023 was £95.6 billion, £34.8 billion higher than the same period last year. This is a drag on government spending.
Public sector net debt (PSND) currently stands at almost £2.5 trillion. The OBR forecasts that PSND will reach 100.6% of GDP in 2022-23, which would be its highest level since the 1960s. Some of this increases has been caused by outside factors such as the need to borrow during the pandemic and the energy crisis.
Naturally, the cost of servicing this debt has increased and will remain substantial.
In short, and this is what you will want to hear there was little announced that will affect expats. No sneaky hidden tax charges, no reduction is allowances.
Pension Lifetime Allowance
The Lifetime Allowance is being effectively abolished from 6th April 2023.
The affects many senior staff in the NHS, mainly doctors, with many saying they will retire early. The country cannot afford to lose their input, hence the action taken.
Until a short while ago, the Lifetime Allowance, which stood at £1,073,100 in the tax year 2022/23 and had been frozen at this level until the 2025/26 tax year. If the value of all pension arrangements, excluding the State Pension, exceed this amount, there would be additional tax to pay. Substantial additional tax.
The limit has varied over the years. It started at £1,500,000 in 2006/07, rose to £1,800,000 in 2011/12 and then steadily reduced to £1,000,000 in 2016/17 before increasing to the recent figure.
While this will be welcomed by those affected, overall this is a small minority of the population. It really only affects the most well off and is a bit of a giveaway. It could have easily increased to the amount that was teased, of £1.8M, and still retained employees.
It is worth pointing out that the maximum Pension Commencement Lump Sum (PCLS – the cash sum formerly known as tax-free cash) for those without protections will be retained at its current level of £268,275 and will be frozen thereafter.
Pension contributions
For several years there has been a limit on annual contributions of £40,000. This has now been increased to £60,000 with effect from 6th April 2023.
Again, this is a measure that will only affect a minority of UK residents. If you are not UK resident for tax purposes this will have no bearing on your situation as you are not permitted to contribute to UK pension plans, above a small level for the first few years of non-residency and conditions apply.
Business taxation
The Chancellor announced that they will be cutting business taxes but that is not the full picture.
The rate of corporation tax will increase from 19% to 25%, as planned, and firms which make a profit of more than £250,000 will pay 25% tax on their profits from April.
There was an announcement for smaller businesses to offset capital expenditure against corporation tax rises.
Stamp Duty
No mention of Stamp Duty this time around so the last set of reductions in thresholds is unchanged but only until 2025, at which time they will increase.
If you are thinking of investing in UK property, or even planning to buy a home, it is best to do so before then.
Take a look HERE for useful information
Energy
A few points worth highlighting.
The Energy Price Guarantee (EPG) will be maintained for a longer period, for the next three months. It is intended to limit typical energy bills to £2,500 per year. From July 2023 the EPG will rise to £3,000.
Households on pre-payment meters, some 4 million, pay more than those paying by direct debts. Announced their charges will be brought in line with comparable direct payers.
Nuclear energy is now deemed environmentally sustainable with the same tax breaks and incentives a other sustainable energy sources. This is apparently a drive to meet net zero targets
Other points to note
- Fuel duty will be frozen for the next year.
- Tobacco duties – rates on all tobacco products will increase by RPI + 2%. The rate on hand-rolling tobacco will increase by RPI + 6% and the minimum excise tax will increase by RPI +3% this year. All with immediate effect.
- The duty on draught products in pubs to be up to 11p lower than the duty in supermarkets from August. Duty rates of all alcoholic products produced in, or imported into, the UK will increase in line with RPI
- Total of £11bn to be added to defence budget. In the Budget document it states that this is actually “£5 billion for defence and national security priorities over the next 2 years and £2 billion each year for defence for the remainder of the forecast period”.
- 12 more investment zones announced. There are across the North and Midlands in England and one each in Scotland, Wales and NI.
- Childcare – several reforms. Incentives for childminders. Child/staff ratios to be amended. Assistance with some childcare costs. Proposals for schools to offer additional hours of care to assist working parents. Some additional free childcare for parents of children of all ages. Many of these won’t take effect until 2025.
- For those working low hours, the Administrative Earnings Threshold will rise from the equivalent of 15 hours to 18 hours at National Living Wage.
- Multiple small announcements to try and get people back into work, especially the over 50s, as the UK has a post-Brexit shortage of workers. Good news for those who want to work but the OBR doesn’t expect this to have the level of results the Chancellor seems to want.
- Some positive announcements to help those with mental health issues and physical disabilities to be part of the workforce.
- A sum of £33M, over the next three years, to support ex-servicemen and women
- An addition £20M to the BBC World Service over the next two years
- Separate self-assessment returns for crypto assets to be introduced from the 2024/25 tax year.
The challenges are still significant and this budget, and the forecasts, seem a little optimistic to me, although some of the growth will come from outside of the UK, as many companies quoted in the UK stock exchanges have major overseas operations.
This is often why the performances of UK stock markets doesn’t match the main UK economy.
There are many more UK small businesses than in the past but what wasn’t mentioned is that much of this is from people who lost jobs over the pandemic and set up on their own to earn an income.
In the Budget document it states that “The Bank of England have noted that the labour market remains tight and domestic price and wage pressures have been stronger than expected, suggesting risks of greater persistence in underlying inflation.”
This should be borne in mind when considering the claims announced. Also bear in mind that a fall inflation does not mean a fall in prices. It just means they won’t increase as much in future.
Disappointingly, no windfall taxes for energy companies, despite the chief of one company saying that they should be taxed. Another wasted opportunity.
This is not a magic fix – although when is it ever?
While this Budget is nothing to get excited about, unless you have a very large UK pension fund, the outlook for the UK economy isn’t all doom and gloom.
The property sector continues to grow and stock markets are boosted by foreign investment. I am optimistic that these will both see positive growth this year and now is a good time to invest.
I have read through the full Spring Budget Statement 2023 as issued by The Treasury (a painful 120 pages with a lot of repetition) and there is nothing else specifically related to taxing expats.
I write articles such as this one as part of the personal financial planning service and that I provide to expats, and the general consumer, financial and legal information that I provide in The National newspaper, other UAE media, and on the Facebook group British Expats Dubai.
To arrange a meeting to discuss any aspect of your personal financial planning, please email me at keren@holbornassets.com
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