After a year in which 120,000 people lost their lives due to Covid-19 and nearly ₤300 billion having been spent to support the UK economy, policymakers requested the new Budget to set out further government support which would help tackle the financial crisis and its implications for the country. But what is set to change from April 2021 that may affect UK expats living abroad?
Expats hoping to invest or buy in British property will be delighted to hear Sunak’s announcement that the Stamp Duty holiday will be extended. The Chancellor announced the expected extension of the Stamp Duty holiday until September 30th.
More specifically, properties worth up to ₤500,000 will be exempted from stamp duty from the end of March until the end of June. After that, there will still be no duty on homes worth up to ₤250,000 for a further three months.
Sunak also announced the creation of a new mortgage guarantee scheme. The scheme aims to stimulate lenders to lend mortgages up to 95% and help people who can’t afford a deposit to enter the property market. The Chancellor noted thanks to the new scheme, the “Generation Rent” will turn into “Generation Buy.”
The thresholds for personal income tax will continue to be frozen from 2022 to 2026 at ₤12,570 for the basic rate and ₤50,270 for the higher rate. Corporate tax is set to increase to 25% in April 2023. However, the Chancellor indicated companies with profits of less than ₤ 50,000 will still pay 19%.
Thresholds for inheritance tax, pensions, lifetime allowance and capital gains tax thresholds will remain frozen. Even with an inheritance tax review, the threshold remains frozen at ₤ 325,000 per person (as it has been since 2009).
The residential nil rate band increases as planned from ₤150,000 to ₤175,000 per person. When passing on a main UK home to direct descendants but starts to taper once joint assets exceed ₤2 million, this provides extra tax relief.
The good news for expats is that overseas property can qualify, provided it is your main home (local inheritance taxes may still apply).
Implementation of a “super deduction” scheme will allow firms to invest in equipment to receive tax breaks from the government.
The extension of the temporary reduced VAT rate for hospitality and tourism will also be extended to the end of September.
Alcohol and fuel duties remain on hold.
Although the personal tax-free pensions allowance remains at ₤40,000, there will be more scope for higher earners to receive tax relief.
Currently, those earning over ₤ 110,000 are subject to a “tapered” allowance, but this threshold rises to ₤200,000 from 6 April 2020. Soon, only those earning an “adjusted income” of at least ₤ 240,000 (including salary, dividends, rental income, interest and pension accrual) are set to lose tax relief in the 2020/21 tax year (versus ₤ 150,000 today).
However, the minimum level to which the annual allowance can shrink will reduce from ₤10,000 to ₤4,000. This will only affect those with total taxable income over ₤300,000.
Lifetime allowance (LTA)
The Chancellor said the LTA would remain at its current level of £1,073,100 for 2020/21 rather than increasing in line with inflation. It had been expected to rise by £5,800 in 2021/22, in line with 0.5% Consumer Prices Index.
UK State Pension
The National Living Wage increase (from ₤ 8.21 to ₤ 8.72) helps increase the State Pension.
Under the government’s “triple lock” commitment, the State Pension currently increases by whichever is the highest of inflation, 2.5%, or– as is the case this year– average earnings. This means those on the older State Pension will see a 3.9% rise, from ₤129.20 to ₤134.25 per week (₤ 262.60 extra a year).
While this includes UK retirees living in the EU, you will need to be lawfully resident in your chosen country before the end of 2020 to continue receiving cost-of-living increases beyond Brexit. The Budget also confirmed the Department of Work and Pensions will backdate ₤3 billion in State Pension underpayments to women over the next few years.
There were no changes to transfers to EU/EEA-based Qualifying Recognised Overseas Pension Schemes (QROPS), which remain tax-free for EU residents.
However, the UK’s 25% ‘overseas transfer charge’ remains for non-EU/EEA transfers. This may be extended once the Brexit transition period ends in December 2020, so take regulated advice to explore your options under current rules.
UK’s economy to recover by mid-2022
The Office for Budget Responsibility (OBR) has cut the growth forecast for this year to 4%. However, the OBR now expect the UK economy to return to its pre-covid level by the middle of 2022 – six months earlier than they previously thought.
The Budget will undoubtedly impact both expats and those currently living in the UK. While the new tax year brings relatively few changes, these are unusually challenging times, with much uncertainty still ahead as the Brexit clock ticks down.
To make sure you are making the most of tax-efficient opportunities in the UK and your country of residence, it’s best to take personalised advice from a cross-border specialist. For more details on how we helps expats with cross-border financial planning, contact us on +44 (0) 2033 935 920 or email us at firstname.lastname@example.org.
The value of investments and income from them may go down. You may not get back the original amount invested.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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