The UK spring budget announcement in March, followed by the start of the new tax year in April, has brought about several changes that could significantly impact British expats living abroad. In this article, we’ll break down the key points in simple terms to ensure you are fully informed and aware of how these updates might affect your finances.

Tax Rates and Allowances for the 2024 Tax Year

Let’s start with the good news: income tax rates are staying the same. If you’re earning up to £37,700, you’ll pay 20% tax. Earnings between £37,701 and £125,140 will be taxed at 40%, and anything above that will be taxed at 45%. The personal allowance (the amount you can earn tax-free) remains at £12,570.

If you own property in the UK, you might be pleased to hear that the higher capital gains tax rate for residential property has been reduced from 28% to 24%. However, the annual exempt amount (the amount of profit you can make from selling assets before paying tax) has been halved from £6,000 to £3,000.

The tax-free dividend allowance has been cut from £1,000 to £ 500 for those with investments. On a positive note, National Insurance rates have been slightly reduced for both employed and self-employed individuals.

Frozen Tax Allowances

Many UK tax allowances have been frozen since April 2021 and will remain unchanged until at least 2026. This includes the inheritance tax nil rate band, which has been frozen at £325,000 since way back in 2008.

While this might not seem like a big deal, it effectively means that more people will end up paying higher taxes over time. As incomes and assets increase with inflation, the amount of tax you pay will also increase, even though the allowances remain the same. This could potentially lead to a significant reduction in your disposable income over the years.

Pension Changes: What You Need to Know

If you have pension funds (excluding your state pension) worth more than £1,073,100, you should be aware of the new pension allowances that came into effect on 6 April 2024.

The Lump Sum Allowance limits the amount of tax-free cash you can take from your pension to £268,275 (25% of £1,073,000). The Lump Sum and Death Benefit Allowance affect the tax your beneficiaries will pay on pension funds inherited after your death. Finally, the Overseas Transfer Allowance applies if you transfer a UK pension to a Qualifying Recognised Overseas Pensions Scheme (QROPS) while living in the EU.

Non-Dom Status and Inheritance Tax Changes

One of the most significant announcements in the spring budget was the abolishment of the UK’s non-domiciled (‘non-dom’) tax status, effective from April 2025. While this primarily affects foreign nationals living in the UK, it could also impact British expats who return to the UK after living abroad for an extended period.

Additionally, the government plans to change how inheritance tax is applied, moving towards a residence-based system. In the future, inheritance tax may be imposed on worldwide assets once someone has been a UK resident for ten years and ten years after they leave. However, these plans are still subject to consultation and may change.

Expert Advice

Keeping up with tax changes and understanding how they affect your unique situation can be challenging, especially as an expat. Seeking personalised advice from a professional can help you optimise your tax position and ensure your financial planning remains on track.

If you have any questions about how these budget updates could impact you and your family, don’t hesitate to reach out to our specialist tax advisors. They can help you navigate the complexities of cross-border taxation and make the most of your finances, no matter where you call home.