An increased State Pension, more generous pensions taper relief and a new stamp duty for non-UK residents. What are the key takeaways of the new tax year on 6 April that may affect expatriates in 2020/21? Jason Porter outlines the key points.
There are no changes to the personal tax allowances or thresholds.
For those employed in the UK, however, an increased threshold for National Insurance contributions from 6 April to £9,500 could represent an extra £100 a year.
Savings and investments
The capital gains tax exemption continues tracking inflation, increasing from £12,000 to £12,300 (£6,150 for most trusts).
Entrepreneurs' relief, enabling certain individuals to reduce capital gains tax when selling all or part of their business, had its lifetime relief limit slashed from £10 million to £1 million.
The dividend allowance remains frozen at £2,000.
While the band of UK savings income that can be earned tax-free stays at £5,000 and the annual ISA subscription limit at £20,000, the allowance for a Junior ISA or child trust fund more than doubles to £9,000.
Take note that investments like ISAs lose their tax-efficient benefits once non-UK resident. Not only are non-residents ineligible to open and save into ISAs, any interest earned may become taxable in their country of residence.
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)
This continues to increase with inflation (as defined by the Consumer Price Index), adding an extra £18,100 to the maximum amount that can be held in UK pensions tax-free.
Currently, combined pension benefits up to £1.055 million avoid 25% or 55% LTA tax penalties - from April 2020, this threshold is £1,073,100.
UK State Pension
The National Living Wage increase (from £8.21 to £8.72) helps to boost the State Pension.
Under the government's ‘triple lock' commitment, the State Pension currently increases by whichever is 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, they will need to be lawfully resident in their chosen country before the end of 2020 to continue receiving cost-of-living increases beyond Brexit.
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.
UK property: Stamp duty for non-residents
Last year, the government consulted on the introduction of a stamp duty surcharge for non-UK residents purchasing properties in England and Northern Ireland. Although that proposed a 1% rate, the Budget confirmed a 2% surcharge from 1 April 2021, applicable on top of all existing stamp duty.
So for non-UK residents who already own a home when they buy a residential property in England or Northern Ireland, they could face up to 17% in stamp duty costs from April 2021. This consists of the usual stamp duty charge up to 12%, plus the 3% surcharge for second homes, plus 2% non-resident stamp duty.
UK inheritance tax
Despite 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. This provides extra tax relief when passing on a main UK home to direct descendants but starts to taper once joint assets exceed £2m.
The good news for expatriates is that overseas property can qualify, provided it is your main home (local inheritance taxes may still apply).
Jason Porter is director of specialist expat tax and wealth management business at Blevins Franks.