UK Autumn Budget 2024: Initial Impressions and what it means for British Expats

The Autumn Budget 2024 was one of the most-anticipated budgets of recent years. It is the first Labour budget since 2010 and the first to be delivered by a female chancellor, Rachel Reeves.

In the coming weeks we’ll see how the dust settles and deliver a more detailed commentary and analysis on the potential impact for British expats living abroad (or nationals of other countries with financial ties to the UK).

In the meantime, this article is intended to present some key highlights particularly those that could have an effect on financial planning matters for expats.

Here are a few of the key financial planning announcements

Key personal taxation points

• The personal allowance and rates of income tax will remain unchanged for 2025-26 and 2026-27. Thereafter they will be increased in line with inflation.
• The rate of CGT applicable to basic rate taxpayers will be 18% and the rate applicable to higher and additional rate taxpayers will be 24%. The distinction between gains on residential property and other assets has been abolished. The increased rates apply to disposals after 29 October 2024.
• From 6 April 2025 the rate applicable to ‘carried interest’ will be 32%.
• Trustees and personal representatives will pay CGT at a rate of 24% and this rate will apply

to gains on disposals from 30 October 2024.

• The rate of CGT for Business Asset Disposal Relief is increasing to 14% (from 10%) for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026. https://www.gov.uk/government/publications/changes-to-rules-for-overseas-pensions-and-scheme-administrators/reducing-tax-free-overseas-transfers-of-tax-relieved-uk-pensions

Key pensions changes

• Inheritance Tax to apply to unused pension funds on death from April 2027, this includes UK pensions and QNUPS, there is a 12-week consultation period from today until 22nd January.
• Overseas Transfer Charge rules changed to remove EEA, UK and Gibraltar exemption, to prevent UK residents from using QROPS to take higher levels of Tax-Free Cash.

Inheritance Tax

The Inheritance Tax nil rate and residential rate bands of £325,000 and £175,000 respectively will be frozen at these levels until 2030. The nil rate band has been frozen at this level since 2009. The residence nil-rate band will continued to be tapered for estates > £2m.

The Chancellor also confirmed that “inherited pensions” will be brought into Inheritance Tax from 6th April 2027, this “will restore the principle that pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance, as was the case prior to the 2015 reforms.” A consultation document has been published which can be found at https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment

Non-UK domiciles and UK nationals living abroad

The Chancellor confirmed the removal of the non-dom regime, to be replaced by a new “residence-based scheme” as from the 6th April 2025 with “internationally competitive arrangement” for those individuals who are coming to the UK on a temporary basis.

So, what does it all mean for British expats?

There are some positives for British expats in this budget. The decision to impose a tax charge on QROPS pension transfers will finally end their misuse by offshore advisors. Since the introduction of the Overseas Transfer Charge (OTC) and then the abolishment of the lifetime allowance, QROPS had become largely redundant with just a few exceptions. Some offshore advisors still advocated for QROPS for their own gain in the form of generous commissions so the extension of the OTC is much welcomed.

Many of our clients maintain UK based pensions (either a SIPP or other). Previously pensions were not treated as an asset within an individual’s estate for inheritance tax (IHT) purposes. Since the pension reforms of 2015, people were incentivised to accumulate capital in pensions for the purposes of inheritance.

The announcement that pensions will now be considered part of a person’s estate for the purposes of IHT will be a contentious and punishing blow to many who feel they have done the responsible thing by paying into pension schemes for years. The fallout will be a widespread revision of financial plans, and it is likely the emphasis will turn to gifting and using trusts to manage IHT liabilities, rather than pensions.

The good news is that from the next tax year (April 2025) none of the above should matter to non-UK residents since the government has decided to abolish the non-dom regime and move to a residence basis for taxation. As such, inheritance tax will also be applied based on residency rather than domicile basis and in most jurisdictions IHT is lower than in the UK.

We’re used to having long conversations with clients over this subject: discussing how, even if you have resided abroad for years or decades, HMRC might still consider you a UK domicile and therefore tax your estate on death. Knowing that inheritance tax will be applied according to residency means that individuals and financial advisors can plan with more certainty.

For example, in Italy the threshold for inheritance tax is much higher than the UK and there are certain tax efficient structures available that can mitigate it completely. In other countries, such as France, it will depend on the value of the estate and thus careful planning is a must both from a financial advisor and a local tax advisor with knowledge of the UK.

We’ll release a more detailed analysis in the coming weeks. Should you wish to discuss anything pertaining to your own situation then please don’t hesitate to contact us.