A Brief Overview
The recent UK Budget has introduced several significant tax policy changes affecting expats, non-domiciled individuals, and those with overseas assets. These updates are crucial for tax planning, as they will impact capital gains, inheritance tax, benefits reporting, and more. This article provides an in-depth review of these changes to help you navigate the shifting tax landscape. For further assistance or tailored advice, consider reaching out to discuss your unique circumstances.
Capital Gains Tax (CGT) Increases
The Chancellor has increased capital gains tax rates, which may affect many expat investors:
Basic Rate Taxpayers
Capital gains tax on assets (excluding residential property and carried interest) has increased from 10% to 18%.
Higher Rate Taxpayers
The rate for higher earners has risen from 20% to 24%.
Trustees and Personal Representatives
Trustees and representatives managing estates will also see a rise to 24% for disposals made after 30 October 2024
These rates apply across the board for gains exceeding the annual CGT exemption threshold, which currently stands at £6,000 for individuals and £3,000 for most trusts.
Changes to Business Asset Disposal Relief (BADR)
Previously known as Entrepreneurs’ Relief, BADR offers a reduced CGT rate on gains from the sale of qualifying business assets:
Increased Rates: From 6 April 2025, the relief rate will rise from 10% to 14% and then to 18% in 2026.
Qualifying Threshold: The first £1 million in gains will qualify for the reduced rate, while gains beyond this will be taxed at the new 24% rate.
For business owners and entrepreneurs considering the sale of assets, the timing of disposals is more critical than ever to maximise tax savings.
Major Reforms to Non-Domiciled Tax Status
As of 6 April 2025, the UK government will abolish non-dom status, which previously allowed UK residents with a foreign domicile to exclude foreign income from UK taxes if it remained offshore. Under the new regime:
- Residence-Based Taxation: All UK residents will now be taxed on global income and gains, regardless of their domicile.
- Impact on Trusts: Foreign income from trusts benefiting non-doms will also be taxed unless the individual qualifies for a new relief period (discussed below)  .
New Temporary Repatriation Facility
The government has introduced a transitional measure to ease the impact on former non-doms:
- Reduced Tax Rates: Former non-doms can remit previously untaxed foreign income and gains accrued before 5 April 2025 at reduced rates of 12% for the first two years (2025–2027) and 15% for the final year (2028).
- Eligibility: This facility also applies to foreign income held within trusts, offering a tax-efficient way to bring assets into the UK
Four-Year Foreign Income and Gains Relief for New UK Residents
The new regime offers a four-year grace period for those newly arriving in the UK, provided they were not UK residents in the 10 years before arrival. This measure:
- 100% Relief on Foreign Income and Gains: For new UK residents, foreign income and gains will be exempt from UK tax for the first four years of residence.
- Eligibility Requirements: New residents must apply for this relief each tax year, making it critical to maintain accurate residency records .
These measures reflect the government’s shift toward a residence-based tax system while offering temporary relief to ease the transition for those impacted.
Inheritance Tax (IHT) Changes for Overseas Residents
Starting from 6 April 2025, the UK’s inheritance tax regime will expand to include worldwide assets of expats under specific conditions
Worldwide Assets in Scope
If an individual has been a UK resident for at least 10 of the previous 20 years, the UK can now apply inheritance tax to all global assets, even if they leave the UK. This measure closes a previously available route for avoiding IHT by moving abroad.
Relief for Recently Departed Residents
After leaving the UK, expats remain within IHT scope based on their residency duration, ranging from 3 to 10 years. The inclusion of overseas assets may significantly increase IHT liability, especially given the UK’s 40% rate, one of the highest globally
For those holding substantial overseas assets, it may be wise to revisit estate plans, especially in light of the relatively low IHT threshold in the UK (£325,000 for individuals and £500,000 with a UK property).
Mandatory Real-Time Reporting of Benefits in Kind (BiK)
From April 2026, the UK government will require real-time reporting of most benefits in kind (BiK) through payroll software, a significant shift for employers and employees alike:
Real-Time PAYE Reporting: Employers must report income tax and Class 1A National Insurance Contributions (NICs) for BiKs via Full Payment Submission (FPS).
Impact on Cash Flow and Admin: For employees, this means taxes will be paid on BiKs as they are provided, rather than in arrears, improving accuracy and simplifying tax administration. However, employers may face an increase in administrative burden to meet real-time reporting requirements
This change aims to reduce end-of-year discrepancies and enhance the clarity of tax liabilities, ultimately leading to a smoother tax experience for all parties.
Stamp Duty Land Tax (SDLT) on Additional Properties
The UK Budget has also introduced changes to Stamp Duty Land Tax (SDLT) rates for second homes and properties purchased by non-natural persons (e.g., companies):
- Increased Rates for Additional Properties: SDLT on additional residential properties has increased by 2%, taking rates for second homes to 3% on properties valued up to £250,000, 8% on properties valued between £250,001 and £925,000, 13% up to £1.5 million, and 15% beyond this amount.
- Higher Rates for Corporate Purchases: Non-natural persons buying residential properties worth over £500,000 now face an SDLT rate of 17%, up from the previous 15%
These changes are aimed at deterring the purchase of multiple residential properties and increasing the availability of housing for primary residents.
Planning Considerations
These wide-reaching tax changes underscore the importance of proactive tax planning, particularly for expats, business owners, and those holding overseas assets. Here are some key planning points:
Review Capital Gains Timing
With CGT rates increasing, planning the timing of asset sales could help optimise tax liability.
Consider Repatriating Foreign Assets
For former non-doms, the Temporary Repatriation Facility provides a unique opportunity to bring foreign income into the UK at reduced rates.
Evaluate Estate Planning
Expats may need to revisit their estate plans to account for the expanded inheritance tax scope, especially given the UK’s high IHT rate.
Prepare for Real-Time BiK Reporting
Employers should work with payroll providers to ensure systems are updated for real-time BiK reporting.
For personalised advice, consider scheduling a consultation. These updates bring both new challenges and opportunities, and expert guidance can help ensure you’re optimally positioned under the new rules.