UK Budget 2016: What are the implications for expats?

uk budget 2016: what are the implication for expats?

The UK Budget 2016 brings mixed news for savers and investors – on one hand capital gains tax (except on property) was aggressively cut, while on the other hand, pension life-time allowances were cut yet again. The 3% stamp-duty charge on buy-to-let properties which had already been announced is in place. Let’s go over the main changes.

Pensions – Lifetime allowance (LTA) and QROPS

The 2016 UK budget cuts the lifetime allowance yet again, from £1,250,000 to £1,000,000 pounds. This is down from £1,800,000 in 2012 – a pretty dramatic change for just 4 years which really hurts successful professionals who have saved carefully but are far from the stereotype of the super-rich.
The implications for ex pats are clear – if you are in a position to move your pension into a QROPS, the case to do so is now even stronger. While transferring into a QROPS is a benefit crystallisation event (so if you are already above the £1,000,000 mark, you will have to pay tax), QROPS are not subject to LTA, so you can build up your pension pot above £1,000,000 without facing 25% tax on withdrawals and 55% on lump-sums. No changes to QROPS themselves were announced.
We’ve discussed the functioning of QROPS, their pros and cons and where to base them extensively.

Equities, Commodities and Ventures – Capital Gains Tax

Capital Gains Tax rates were slashed in the UK Budget 2016 from 18% to 10% and 28% to 20%, except for property and carried interest. So if you are looking to invest in a business venture, growth equities or commodities that are subject to UK tax, the potential returns are now that much juicier. We discussed the case for oil, and how the discussion of Brexit may be a buying opportunity for UK assets such as equities.
Regarding business ventures, a number of adjustments were made to Entrepreneurs’ Relief. For instance, investors in private unlisted ventures no longer need to be employed by the company in order to benefit.
On the other hand, a lifetime £100,000 limit was placed on the Employee Shareholder Status exemption on CGT, which could hurt if you have been heavily invested in your employer’s shares.

Property – Stamp Duty and Infrastructure

As had already been announced, buy to let residential properties now face additional 3% stamp duty. There is, however, a 36-month grace period in which to dispose of these properties. The go-ahead for the HS3/Transnorth link between Manchester and Leeds and Crossrail 2 projects could impact property prices in those regions. We’ve discussed the opportunity for Real-Estate in various UK markets here.

Savings – ISAs

While pensions have been hit, the budget raises ISA subscription limits to £20,000 and introduces the ‘Lifetime ISA’ for those aged between 18 and 40. Up to the age of 50, savers will be able to contribute up to £4,000 each year, and receive a £1,000 bonus from the government. With interest rates at all-time lows, a free 25% bonus is significant. Saving £4,000 plus the £1,000 bonus per year at a rate of 2% for 20 years adds up to £121,000, vs £97,000 if there were no bonus – a nice boost. Or looking at this another way, interest rates would have to be 4.2% – over twice as high – for the ISA to reach £121,000 without the bonus. If you are within the age-bracket, make use of it. And if not, encourage your children to do so.

Non-Domicile Taxation

As had been announced in 2015, individuals are UK domiciled if they have been resident in the UK for 15 out of the past 20 years, and those born in the UK and originally domiciled in the UK are UK domiciled if they are UK resident. In addition to this, the UK Budget 2016 only had a fairly minor change regarding the re-basing of non-UK assets held by non-doms as at April 2017.

Requirement of UK tax registration for services and licences

It was announced that in the summer of 2017, the government will discuss the principle that licences and access to government services will only be issued to those registered for tax in the UK, which could have significant impact for ex pats, so watch out for news on that front.

In conclusion, the UK Budget 2016 has a number of significant changes for savers and investors, and important implications for expats. It might make sense to discuss with your financial advisor how to adjust your portfolio in light of these changes.


CHRIS LAND, FINANCIAL ADVISOR

Chris has 9 years’ experience as a UK pension specialist and licensed financial advisor. He specialises in helping clients make balanced financial decisions to grow their personal wealth.

Chris is licensed with Globaleye, an award-winning international financial advisory firm established in 1999, with 10 offices and 15,000 clients worldwide.


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