How does the new UK tax year affect you?
By Paul Montague, Partner, Blevins Franks
928 433 411 | canaryisles@blevinsfranks.com | www.blevinsfranks.com
The UK tax year started on 6 April, so how will this impact your pocket? UK tax changes can affect you even if you are living abroad, so here we outline the key announcements in the last two UK budgets.
If you are weighing up whether to relocate from UK, this may prompt you to investigate residence abroad this further and weigh up the tax implications.
Lifetime Allowance and other pensions tax changes
Probably the biggest surprise of the UK’s 2023 spring budget was the abolition of the pensions Lifetime Allowance and resulting tax charges.
While the Lifetime Allowance itself remains in place for now, the tax rate for anyone breaching the limit is 0% from 6 April 2023 onwards. It will be scrapped entirely in the 2024 Finance Bill.
First introduced in 2006, your Lifetime Allowance is the amount you can hold in combined UK pension benefits (excluding state pension) before incurring additional tax charges – 55% when taken as a lump sum or 25% for income or overseas transfers. It has been cut significantly over recent years, from £1,800,000 in 2011 down to £1,073,100, before being scrapped.
Abolishing this extra tax was welcome news for those who have built up larger pension savings over decades of contributions and growth.
A future government could, however, reverse this move and the Labour Party quickly pledged to do so. The next general election must be held no later than January 2025. Bearing in mind that pension transfers can take up to six months, there may be a limited opportunity to transfer your pension out of the UK and avoid any future UK charges.
Other pension changes effective from 6 April 2023 include an increase to the Money Purchase Annual Allowance and minimum Tapered Annual Allowance from £4,000 to £10,000. The Annual Allowance for pension contributions also increased from £40,000 to £60,000.
UK income tax
The spring budget did not include any significant changes to income tax, but the Autumn Statement included measures to increase taxation.
The income tax personal allowance, higher rate threshold, national insurance contributions, upper earning limit and upper profits limit were frozen at their 2021 levels for another two years, until April 2028.
Freezing allowances and thresholds is often referred to as ‘tax by stealth’ since it increases taxation without putting up tax rates.
The income threshold for the additional 45% tax rate (47% in Scotland) has reduced from £150,000 to £125,140 with effect from 6 April 2023.
As previously confirmed, from the start of this new tax year corporation tax has increased to 25% for businesses making over £250k in profits.
Capital gains and dividends taxation
As announced in the Autumn Statement, the Capital Gains Tax Annual Exempt amount has dropped from £12,300 to £6,000 for the 2023-2024 tax year. It will be cut in half again, to £3,000, in April 2024.
The Dividend Allowance has also been halved, from £2,000 to £1000 from April 2023, and then to £500 in 2024.
UK inheritance tax
Both the general Nil Rate Band and Residential Nil Rate Band will remain frozen at £325,000 and £175,000 respectively until April 2028. Coupled with rising house prices, this will drag more and more families into the IHT net unless you take action. The general nil rate band has actually been frozen since 2009, which has impacted many families.
Cross-border tax advice
Take personalised advice from a cross-border specialist to establish if and how the UK tax changes could impact you and your family, even as a non-resident. If you have not yet left the UK, take advice before you dispose of UK assets to ensure you do that as tax-efficiently as possible.
Blevins Franks has been advising UK nationals moving and living in Europe for 45 years. With offices in both the UK and the key expatriate locations in Southern Europe, and teams of tax and pensions specialists, we offer genuine cross-border expertise. We can help you plan and time your move abroad, or, if you are already an expatriate, review your wealth management to help make sure you take advantage of the local tax planning opportunities in your country of residence.
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.
