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https://www.blevinsfranks.com/uk-general-election-tax-and-pensions/
What does the new UK government mean for tax and pensions?
By Paul Montague, Partner, Blevins Franks
928 433 411 | canaryisles@blevinsfranks.com | www.blevinsfranks.com
It’s all change at Number 10, but what changes are in store for tax and pensions? It is very early days, and we may have to wait until the autumn budget for any firm evidence of the government’s fiscal plans. For now, we look at the Labour Party manifesto and campaign rhetoric for indications of what direction it will take.
Any new government will review tax revenue and spending costs, and new Chancellor Rachel Reeves inherits a challenging economic situation. Public sector debt surged due to the pandemic and inflationary pressures brought on by the invasion of Ukraine. Increasing tax revenue would go some way to improving debt levels but, with the tax burden already the highest in 70 years, increasing taxation on families struggling with a high cost of living would not be a popular move.
Here we look at what we know, and what we don’t know, about the issues that may impact retired British expatriates.
Income tax, national insurance, VAT
The Labour Party manifesto confirmed that it would not increase income tax, national insurance contributions or VAT.
Raising tax rates is not the only way to increase revenue from such taxes, however, and keeping income tax bands and allowances frozen also serves to improve the Treasury’s coffers. The Conservative government employed this policy since 2021 and, with the resulting fiscal drag, many people are now paying more tax than previously.
We do not yet have a clear indication of where the new government stands on frozen tax allowances. It could maintain them till 2026 as planned, end them earlier, or perhaps extend them.
Capital gains tax
This is where it gets interesting. The manifesto did promise not to tax an individual’s main home but did not include anything on capital gains tax rates. That said, during the campaign period Labour candidates maintained there were “no plans” to increase CGT rates – but this has not stopped speculation that this tax could be one of the targets for increasing revenue.
If indeed that does happen, it is likely to be further down the line and we would not get much warning.
Non-domicile regime and inheritance tax
The Conservative Party’s last budget included plans to abolish the non-domicile regime from 2025 and replace it with a residence-based system, though it was then missing from its proposed Finance Bill 2024.
The Labour Party manifesto followed this up by promising to address unfairness in the tax system and abolish ‘non-dom’ status once and for all, replacing it with a modern scheme for people genuinely in the country for a short period. We need to wait for details, but this would be a significant change to how foreign nationals living in the UK are taxed, as well as potentially for British expatriates and their liability to UK inheritance tax (IHT) on worldwide assets.
What we do know is that the Labour Party plans to end the use of offshore trusts to avoid UK inheritance tax – non-domiciles would no longer be able to shelter offshore assets from IHT, regardless of when the trusts were established.
There has been no mention of other changes to the inheritance tax regime, such as to the 40% tax rate or the two nil rate bands.
Pensions
These are interesting times for UK pensions, with the Labour Party having promised to review the whole pensions system.
This means we do not have much indication of any plans yet, though the manifesto did affirm that the ‘triple lock’ will be maintained. The State Pension will continue to increase annually by whichever is highest of inflation, annual average earnings growth or 2.5%. A welcome pledge, but a costly one for the government.
The manifesto also indicated that the new administration would look at the potential of imposing requirements for pension funds to invest more in UK markets. This could help re-energise the UK economy but may mean less flexibility on which investments you can hold in your UK pension fund.
One very notable absence was the lifetime allowance. When the 2023 spring budget abolished this allowance and resulting tax charges, the Labour Party was quick to voice its opposition and commit to reinstate it.
Doing so would be no easy task, however, especially after three new pension allowances came into effect this April. But no doubt the government will look at these allowances when it reviews the pension system, to determine what reforms it will introduce.
British expatriates
While many UK changes do not directly affect British expatriates (unless they later return to UK), taxation can have a long reach, especially if you own assets in the UK, and inheritance tax follows you around the world in most cases.
And reforms to the pension system will impact everyone with UK registered pensions, including retired British expatriates.
Until a tax or pension change is announced, we can only speculate what will happen in the ever-changing world of politics. Manifesto and pre-election promises can be broken or have to be adjusted, and reforms are only set in stone when the government releases the relevant new documentation (budget announcements, finance bill, legislation etc).
We now await developments over the coming weeks, at the next budget, and whole parliamentary term. In the meantime, you may have a brief window to adjust your wealth management under current regulations, if you prefer acting on known rules rather than facing potential future changes.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.
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