UK Budget Preview: What Expats and the Wealthy Need to Know
Subscribe to our newsletter for the latest expatriate news, views & analysis.
As we approach the end-of-November budget announcement, speculation is mounting about the changes the government might introduce. Given the UK’s record-high debt levels, it's almost certain that the Chancellor will need to find ways to increase revenue. The big question is: how will they do it, and what are the implications for those living, working, or considering relocating abroad?
This is a preview of potential changes, and we encourage you to use this time to review your financial strategy.
The Revenue Conundrum: Debt, Growth, and the Tax Sweet Spot
The UK’s current government debt is at its highest level ever. While post-war borrowing was high, the subsequent decades saw an environment where people could work, build businesses, and invest, naturally reducing the debt. Today, however, high debt is coupled with low growth.
The government is committed to not increasing taxes on "working people," but this leaves open the possibility of taxing wealth and capital. A government can increase revenue via:
Income Tax / National Insurance (a separate tax on income)
Capital Gains Tax (CGT)
Inheritance Tax (IHT)
New Forms of Wealth Tax
The Laffer Curve and Incentives
A fundamental principle of economics suggests there's a "sweet spot" for taxation. If taxes are 100%, people have no incentive to work or earn, and revenue is zero. If taxes are too low, revenue is also low. If tax rates are too high (as seen with the 98% top rate in the 1970s), they significantly disincentivize wealth creation and ultimately reduce the tax base.
We don't want to stop people from working, building wealth, or employing others. Therefore, the government must find a fair rate that encourages hard work and business growth while still funding public services. Taxing the wealthy heavily in a global economy risks them simply relocating, taking their wealth and job creation potential with them.
Tax Creep and Potential Threats to Expats and UK Assets
For UK expats and those with significant assets, the budget could bring changes that fix more income and capital gains liabilities in the UK, even if you are a tax resident elsewhere.
1. Capital Gains Tax (CGT) on UK Assets
Currently, if you are a non-resident for more than five years, you can avoid UK CGT on the sale of non-UK assets (and some UK assets like shares).
Potential Change: The government could declare that all capital gains on UK-based assets (UK shares, investment funds, UK property, etc.) are fixed in the UK, regardless of where the owner is tax resident.
Consequence: This would remove the incentive for wealthy individuals to leave the UK for a five-year period to realise large gains at a lower tax rate abroad. If a majority government passes this, it could come into force immediately. ****
2. Attack on Pension Funds
Pensions are a prime target for revenue generation:
Fixing Pension Drawdowns: Government service pensions are already fixed in the UK, meaning the income is taxed there. The budget could extend this to all private pensions (SIPPs, etc.). This would mean expats, even those in a no-tax or low-tax country (like the Middle East or Cyprus), would have their pension income taxed at the UK marginal rate (potentially up to 45%).
Reducing the Tax-Free Lump Sum: The current maximum tax-free lump sum (usually 25% of the fund) could be drastically reduced, perhaps to a flat figure like £50,000. This makes a larger portion of the fund subject to future income tax, which increases the government’s credit rating and borrowing capacity.
Inheritance Tax (IHT) on Pensions: IHT has already been extended to include pension funds (a 40% tax on death). Offshoring your pension is a strategy to protect this capital from the 40% IHT charge.
3. Introducing a Property or "Wealth" Tax
Another possibility is taxing property and wealth during a person's lifetime to generate immediate revenue.
National Insurance on Rental Income: A suggested measure is to charge National Insurance on residential property rental income. This is essentially an income tax increase, but using the "National Insurance" name attempts to align it with earned income, which is an oxymoron for an investment return.
A General Wealth Tax: An annual tax of 1-2% on large capital assets (e.g., a London house, large business holdings, or crypto fortune). While framed as taxing the "wealthy," a 1% tax on a £1 million house would require an owner to pay £10,000 annually, which must be funded from their cash income. A wealth tax is often just a deferred tax on income or a tax on capital, and historically, they have proven very unsuccessful globally. It could be hidden by reorganising local council taxes into a flat-rate property tax.
Planning Your Next Steps: Timing is Everything
The options for the government are narrowing: cut spending (difficult due to internal political dissent) or raise taxes (unavoidable given the debt and interest). They are likely to do a mix of both.
For expats or those considering a move:
Review Your Tax Residency: If you plan to establish tax residency abroad, time is crucial. The budget changes could be implemented from the day of the announcement or from the next tax year (April 5th). You may be able to secure tax residency or an overseas property purchase in a few weeks, which could be vital for your tax position.
Consider "Bed and Breakfasting" Your Gains: If CGT rules change to fix gains in the UK, realising gains before the budget could be a prudent move.
Manage Your Pension Fund: Explore the options for offshoring your pension fund to protect it from a potential fixed UK tax rate and the 40% inheritance tax.
We offer a free review and advice session for anyone interested in discussing their options for living and working abroad, or managing cross-border assets and tax residency.
For more information, guidance, or a free review, you can contact us.
Need help & guidance?
Contact us or book a free review with one of our expatriate experts for help & guidance living or working abroad.
