Another Spring, another UK Budget, but what will it really mean for you?
Following every Budget or Statement, I write an article to give people who are not resident in the UK a concise overview of some of the main points, with particular reference to any changes that have relevance to those of us living outside of the UK, especially in the GCC.
The UK press will cover many points in detail but much of it will not be directly relevant to expats so this article focuses on the points that will be of most interest.
An announcement about a General Election is expected as the clock is ticking, so this is the last chance for Chancellor Jeremy Hunt to make a few announcements to gain some votes.
There is a possibility that there could also be an Autumn Statement if the government delays an announcement but it is unlikely that any political party would want an election in December or January.
The UK economy has grown at a rate that is less than the average rate for wealthy countries. The government has claimed differently but it all depends on what economic measures you look at. Had it grown more, the government would have had another £50 billion of tax revenue to spend. The UK is currently in a shallow recession.
In recent years, it has been common for Chancellors to rattle off a load of figures in their speech, and it is as political as economic, but we need to focus on the actual substance, not just the spin.
The OBR (Office of Budget Responsibility) forecasts inflation to fall to its 2% target in Q2 2024, a year earlier than in their November 2023 forecast. Comment and feedback from the OBR is relevant as this independent office monitors government spending, and also assesses all plans.
Paul Johnson, director of the Institute for Fiscal Studies, advises taking today’s borrowing figures with “a pinch of salt”, as they are dependent on very tight spending plans for the next parliament.
Now to the relevant announcements.
Capital Gains Tax (CGT) on Property Sales
A reduction in CGT on property to 24% from 28%. The Chancellor claimed the move is predicted to increase revenues as there will be more transactions.
This will be beneficial to anyone who sells a property that is not their principle private residence, their main home, so it relates to property that is let or an investment.
The tax rates for property gains on sale will now be 18% and 24% so those whose gains push them into a high marginal rate will pay a reduced amount of tax.
As the CGT allowances have reduced in recent years, to just £3,000 per person in the 2024/25 tax year, from £12,000 before 2022/23 the overall difference won’t be significant for many.
(Let me know if you need calculations as I offer this service.)
Non-Dom Tax status
A potentially controversial announcement to reduce non-dom taxes, to abolish the current tax system and replace it with a “fairer residency-based system”.
No tax will be required on foreign income and gains in the first four years of residency. After this time, taxation will be the same as for any other UK resident.
This will ensure that all UK residents who stay in the UK for over four years will pay the same tax on their foreign income and gains, regardless of their domicile status
There will be transitional arrangements for existing non-doms who pay UK tax on a remittance basis.
There has been speculation about changes to this set up but it will not affect the vast majority of expats.
NOTE: Residency and domicile are very different concepts in UK Law and most Brits who live abroad will remain UK domiciled.
Inheritance Tax
The Budget Statement references an intention to move to a residence-based regime for Inheritance Tax (IHT) and there will be a consultation on this in due course.
It refers to “consulting on a 10-year exemption period for new arrivals and a 10-year ‘tail-provision’ for those who leave the UK and become non-resident
This will be one to watch. If ther is a General Electionin the next few months it might not happen.
No changes to IHT will take effect before 6th April 2025.
In the small print it also states that from 1st April 2024, personal representatives of estates will no longer need to have sought commercial loans to pay inheritance tax before applying to obtain a “grant on credit” from HMRC. This should ease the payment of inheritance tax before probate or confirmation.
Note that fewer than 5% of UK estates are subject to inheritance tax.
National Insurance
A reduction in National Insurance payment is no surprise as this information was widely leaked.
A reduction of 2% from April of this year. The main rate will reduce from 10% to 8% from 6 April 2024.
This should be worth some £450 a year to a person on the UK average income.
The main self-employed rate of Class 4 self-employed contributions will reduce to 6%.
The Budget report states that it will launch a consultation later this year to discuss the intention to fully abolish Class 2 National Insurance. This is likely to affect non-residents who are making voluntary payments.
ISAs (Individual Savings Accounts)
A consultation on the reform of UK ISAs. An additional £5,000 to be added to the existing allowance, subject to consultation, but this money has to be invested in UK shares. It is already being referred to as a Brit ISA.
Only UK tax residents can make ISA contributions.
There will also be a requirement for local authorities and defined contribution (DC) pension funds to disclose how much they have invested in UK shares. UK pension funds currently invest a fraction (4%) of their assets in UK shares.
Given the UK economy and stock market, there may be good reasons for that.
Furnished Holiday Letting (FHL) Tax Regime
There was a government press release about this last week so this was already known. See my LinkedIn post HERE
This will take effect from 6th April 2025, meaning short-term and long-term lets will be treated the same for tax purposes.
Individuals with both FHL and non-FHL properties will no longer need to calculate and report income separately.
My understanding is that the reason behind this is to limit excessive short-term and holiday rentals in local communities that change the feel and economy of a place.
Multiple Dwellings Relief, a Stamp Duty anomaly for multiple purchases, to be abolished.
There is no mention of Stamp Duty Land Tax.
The High Income Child Benefit Charge
Child benefits payments are reduced when one parent earns over £50,000 a year and then withdrawn on an income of £80,000. This means that two people earning £49,000 can receive it but not if incomes are say, £62,000 and £10,000.
There will be a consultation to move to a household-based system with effect from April 2026. This seems fairer.
In the interim, the threshold will increase to £60,000 with effect from April 2024
Other points
- Excise Duty on Vapes to be introduced from October 2026.
- Increase in tobacco duty from October 2026,
- One off increase to Advanced Passenger Duty (APD) for non-economy domestic and short-haul flights. Premium economy tickets will also be subject to this increase.
- Alcohol Duty was due to rise in August, having been previously frozen. The duty freeze has been extended to February 2025.
- Fuel duty will be frozen for another next year. This is not a cut, just not an increase. Note there has been no increase in fuel duty since 2011.
- Further NatWest shares to be sold to the public, as the government is to sell its 31% holding. (Shares trading today at 254p, the highest level for seven months and the 31% stake was bought at 500p in 2008. Bought to bail out the troubled RBS but not any kind of money maker.)
- VAT registration threshold increasing from £85,000 to £90,000 from 01/04/24 BUT it has been frozen for seven years so this is just some catching up
- Tax credit increases for creative industries
- Further funding for devolved administration in Scotland, Wales and Northern Ireland.
The Chancellor opened his speech by saying they would fund a war memorial to recognise Muslim soldiers who fought for the British Armed Forces, to the tune of £1M. The actual wording in the Budget is that they will do this “subject to business case’.
You may ask if this is a good Budget. But what defines a good Budget? I’d say one that makes a positive difference to people and the economy.
While a cut in National Insurance payment is welcomed by many, it is a progressive tax and will affect those earning between the lower and upper thresholds. But is it enough?
People are still suffering from the effects of high inflation in recent years and while the UK rate of inflation has reduced, prices for many things, such as groceries and utility bills, are still significantly higher than they were a few years ago. Prices in real terms are higher. Salaries have not increased in the same way so a significant number of people are feeling the pinch.
Add in frozen personal allowances and we have what is known as “fiscal drag”
Overall, the tax burden on individuals is still high, no matter what is claimed. It is at a level last seen in the 1940s, post WWII. The Chancellor claimed that personal taxes are now the lowest since 1975 but there is a difference between personal taxes and the actual tax burden. VAT was only introduced in 1975, at a rate of 10%, half the current level. That makes a big difference to spending power and total tax paid.
Today’s Budget is the main one but there was a Scottish Budget just last week. The population of Scotland is around 5.5 million, so this one affects more people. That increased rates of income tax and demonstrates the divergence of the Scottish government.
I have read through the full Spring Budget 2024 as issued by The Treasury (98 pages to make anyone cross-eyed) to ensure there is nothing in thefine print not covedred it the Budget speech and UK press.
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, including those mentioned below.
Sterling is still weak again the US Dollar and linked currencies but this will benefit expats who want to convert money to Sterling. See THIS LINK for the best value, and most importantly, the safest way to do so
Areas of advice. How can I assist?
Planning your financial future. The top 10 mistakes you want to avoid
Offshore bank accounts. The benefits for expats
As a British citizen living overseas, you can now register to vote in UK elections no matter how long you have been out of the country. Previously there was a time limit of 15 years but this has been removed.
See this link for information on how to register: GOV.UK – Register to vote