Once again Jeremey Hunt, as Chancellor of the Exchequer, has delivered an Autumn Statement, this time with a claim that there would be 110 measures “to help grow the economy”. We will be the judge of that…
This article is a brief overview of some of the main points with particular reference to any cannouncements that have 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 will directly affect us.
As has become common in recent years, many of the announcements were trailed and leaked to the media ahead of time but there is always more to any financial statement than the press-friendly announcements and the speech in the House of Commons.
There were the usual claims of economic growth, a claim made by every Chancellor, but the reality is that the UK is seeing little of that.
The Chancellor said that the economic improvement is from higher tax receipts from a stronger economy but the reality is that tax receipts have grown massively largely due to frozen tax allowances.
Add in the effect of rising wages due to higher inflation and the economy is really not stronger.
There are a few tax cuts, but most people have seen an increase in the tax burden – in real terms – in recent years.
Thankfully the headline rate of UK inflation has halved from its peak but that only means that prices and costs will rise less. The effect of double-digit inflation is still being felt as a prices of most goods and services have risen and they are here to stay.
Not an exciting Autumn Statement but these are the main need-to-know points.
Class 2 National Insurance Payments
In the UK this is paid by the self-employed at a flat rate of £3.45 a week in earnings over £12,570. In his speech the Chancellor stated it was being abolished.
This is one of the classes of voluntary NI payments that are paid by non-residents to boost state pension entitlement.
Buried in the fine print toward the end of the Autumn Statement it states: “those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so.”
I take this to mean that non-residents who are paying voluntary contributions at this low rate will continue unchanged. This is far cheaper than the higher Class 3 payments, at £17.45 per week, which many are paying per published Government policy.
There may be further reform in respect of Class 2 payments next year so we will have to wait and see what happens. I suspect that no one involved in writing it considered non-residents.
Other National Insurance payments
The self-employed in the UK who pay Class 4 National Insurance at 9% on all earnings between £12,570 and £50,270 will see that rate cut by 1%, to 8% from April 2024.
In addition, employees will benefit from a cut in the employee National Insurance tax from 12% to 10%. This is not charged on all earned income.
This reduction in employee National Insurance will take place from January 6th 2024.
National Insurance was first introduced in the UK in 1911 and was intended to provide health and pension benefits. It was significantly expanded in 1948 but for very many years it has been part of the general “tax pot” even if collected in various, complicated ways. It’s tax by another name.
Inheritance Tax
Despite teaser comments in recent weeks, there was no announcement about inheritance tax and no changes.
The reality is that inheritance tax is only paid by around 4% of UK estates. Most people’s estates will not be liable for this tax so, while it is very unpopular, it only affects a minority.
The nil rate band remains at £325,000 but that is essentially doubled for couples and there is an additional allowance for a property that is passed to children.
The threshold is higher than you may think, up to £1M for a married couple, and so it has less impact on the average UK resident than certain headlines may have you believe.
An article on UK inheritance tax will be published here before long so you may want to subscribe to this website in order to receive it.
Income Tax
No mention of tax thresholds so they will remain frozen to 2028, as previously announced. The personal allowance is £12,570 in the 2023/24 tax year.
This is the amount below which UK income is not taxed. This also applies to British non-residents and for non-residents from countries that have relevant tax agreements.
UK State Pension
The Pension Triple Lock will remain and Hunt reiterated government commitment to it. Essentially, the triple lock guarantees that State Pensions payments increase in line with wages, inflation, or 2.5% – whichever is highest.
With effect from April, the full State Pension will increase by 8.5% to £221.20 a week.
Are you aware that some 1 million pensioners in the UK only receive the basic State Pension and have no other income?
You don’t want to join them so must make additional provision for your future.
Personal pension provision
There were a couple of announcements regarding pensions. Much of it related to how occupational and government schemes will invest, private equity funds, and insolvency of company arrangements, but there was mention of possible upcoming changes for individuals.
There will be consultation on giving individuals the legal right to require an employer to pay the mandatory pension contributions to an existing pension plan, the idea being that they will have “one pot”. Whether people will choose the right pot is open to discussion.
Other points
- An increase in UK minimum wage to £11.44 per hour. This is an increase of 9.8% which sounds good but you do need to factor in the effect of inflation plus the frozen tax allowances, so in real terms it is rather less than it might appear
- The minimum wage will also apply to people aged 21 and 22 for the first time
- Universal Credit to increased by 6.7% from April 2024
- A freeze on alcohol duty (beer, cider, spirits and wine) until 1st August 2024.
- The VAT exemption on sanitary products to be extended to period underwear
- Various business tax breaks previously announce will become “permanent”. (My quotation marks as no such things as permanency in politics)
- Various measures and tweaks to support small businesses
- Plans and measure to increase public sector productivity
- Measure to support the long-term unemployed into work BUT with a likely cut in benefits if not in work after 18 months.
- A potential sell-off of the remaining shareholding in NatWest. We could see a rather Thatcherite privatisation share offering.
- A commitment to invest in improving backlogs for planning permission across the UK, as well as other reforms. The UK has a massive shortfall in home so this will only have a small effect in the next few years.
A summary and some thoughts
Very short summary – not much for expats unless you are paying Class 2 National Insurance contributions.
Jeremy Hunt is certainly not the worst Chancellor of recent years, although we’d all rather forget the disastrous mini Budget from Kwazi Kwarteng of September 2022, under the brief premiership of Liz Truss.
Even so, this Autumn Statement is nothing to get excited about.
The Office of Budget responsibility (OBR), in line with other forecasters, has stated that it is going to take rather longer for the UK rate of inflation to fall to the target of 2% – until 2025. Growth forecasts have also been downgraded.
The OBR also writes that “real GDP per person remains 0.6% below its pre-pandemic peak and in the central forecast only recovers that peak at the start of 2025.”
For these reasons, the Bank of England is on record as being somewhat downbeat and we are unlikely to see much of a fall in UK bank rates for a while.
I want to highlight some debt figures, also known as government borrowing. A little over a year ago, under the Conservative government of Liz Truss, so the same political party, the UK debt ratio reached 100% of GDP. That’s a very worrying number.
It was announced that it has fallen – thank heavens – but only to 94%. That is in the right direction but still far too high. Public sector borrowing looks to remain high per OBR forecasts. Debt levels across G7 countries are worryingly high even if the UK has the second lowest debt ratio after Germany.
Once again it is relevant to point out that the UK has a large number of very wealthy non-doms who pay exceedingly low amounts of tax compared to their income. There was no reference to them paying any more to contribute to the country, nor of taxing companies who claim to be offshore but conduct significant amounts of business in the UK. Pillar 2, the G7 multinational tax agreement is unlikely to make much difference.
A cut in National insurance for employees will be welcomed but in an ideal world, and I am always the optimist here, I would love to see a major reform to the UK’s unnecessarily complicated tax system so it was easier for everyone to understand.
Not everyone realises that the combined tax rate for a basic rate tax payer is 32%.
While the Government claimed that they are cutting taxes, that isn’t the reality. We must always consider rates of inflation and the frozen personal allowances.
As stated by the Office for Budget Responsibility, the tax burden, the percentage of individual income that is paid in all taxes, is still set to rise to a post-war high. In the words of the OBR:
“Living standards, as measured by real household disposable income per person, are forecast to be 3.5% lower in 2024/25 than their pre-pandemic level.”
To sum up this Autumn Statement: “I got 110 measures but a cut in the tax burden ain’t one…” 🎶 🎶
(With apologies to Jay-Z.)
This article is not intended to cover everything in the Autumn Statement but simply to pick out and highlight the main points, plus any specifics, that can affect UK citizens living in the GCC.
I have read through the full Autumn Statement 2023 as issued by The Treasury (a rather dull 120 pages) 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
Please take a look at the other useful articles on this website.
Sterling is still weak again the US Dollar and linked currencies but will befit expats who want to convert money to Sterling. See THIS LINK for the best value, and most importantly the safest way, to do so