Cuts to UK Stamp Duty but expats and non-domiciles face higher taxes
UK property investment gets cheaper, pension reforms confirmed but expats and non-doms face tax rises
Buying a UK property just got cheaper for many with cuts in stamp duty for homebuyers set out in the UK government's Autumn Statement. But for expats who own property, there was confirmation that capital gains made on the property will be subject to 18% or 28% tax from next April. There was better news in the confirmation that individuals can now pass on their pension funds free of UK inheritance tax to their loved ones without the so-called 55% 'death tax' on the transfer of pensions. But individuals who are UK resident non domiciled, must pay more each year to retain this tax-advantaged status.
The UK Chancellor, George Osborne, made plenty of small tax tweaks in his Autumn Statement that affect non-resident expats, as well as UK residents and non-domiciled individuals who live in the UK. In that sense, it was a budget for everyone. We take a look at some of the major reforms.
UK Property Stamp Duty Land Tax (SDLT)
The headline grabbing reform to UK Property's Stamp Duty (SDLT) was a popular move by the Chancellor and brings the UK into line with Scotland's system of tax on property, an increasing tax rather than a slab tax based on rigid property price bands. Under the old system, stamp duty for UK residential property became payable on the whole price of the property based on a percentage depending upon which band the property fell into. Under the new system, tax will be payable for the portion of the price within each band, like income tax. The new UK property stamp duty rates are as follows:
For very many UK homebuyers, these changes to stamp duty will mean a lower level of tax payable when buying a property, but for others the charge is much greater. As a guide, those buying a UK property for less than £937,500 will see a reduction in their stamp duty tax bill. But those buying over this level will see an increase.
UK Capital Gains Tax on Property for Non-Residents
The government initially warned UK non-residents in 2013 about its intention to tax the profits they made when they sold their UK property. Now, it has been confirmed. From 6th April 2015, all gains on property will be subject to 18% or 28% capital gains tax (CGT) when held personally (depending on the individual’s total taxable gains and UK income for that year).
Non-residents of the UK should consider the impact of this new tax charge on the investment returns they anticipate to receive from investing into UK residential property.
Pension and Retirement Planning
According to the new rules, people aged 55 will be allowed to withdraw money from their untouched defined-contribution funds, starting from 6 April 2015. It also allows for 25% of the ‘Uncrystallised Funds Pension Lump Sum (UFPLS) to be tax-free once withdrawn, whilst the remaining amount will be taxed according to the person’s marginal tax rate. There will also no longer be a need to purchase an annuity or assign the remaining funds as going into drawdown.
This policy provides new opportunities for pensioners to efficiently organise their income tax in retirement. However, they should seek timely advice on financial planning and timely tax. This also gives a chance to those who have not yet fully funded their pensions to take advantage of the extra incentives.
Passing on Your Pensions
The new rules also allow pensioners to pass on the remainder of their pension funds to their beneficiaries without having to pay a 55% tax charge on death. Those who inherited the funds from a pensioner aged over 75 upon death will only have to pay tax at the marginal rate of income tax if and when they take money out. Those who choose to keep the funds invested will be able to avail themselves of the tax-free growth until the money is withdrawn.
Those who can fund their retirement by ways other than their pension should carefully consider these inheritance tax advantages. And to ensure that your loved ones (beneficiaries) can take advantage of the benefits of any remaining pension funds upon death, you should review and revisit your plans and update your Will.
Non Domiciled Individual Changes
Currently, non-domiciled residents must elect to pay for these charges annually, allowing them to make changes in their affairs in order to minimise the charges. Under the new rule, which is expected to be implemented on 6 April 2015, non-domiciled UK residents may choose to be taxed on their income abroad that they bring to the UK instead of being taxed on their income worldwide as a UK national. There are different annual charges for this beneficial treatment, which depends on the number of years non-doms have been residents in the UK, out of a number of tax years: £30,000 for more than seven years (out of the last nine tax years); £50,000, which can rise to £60,000, for 12 years (out of the last 14 tax years); and £90,000 for 17 years (out of the last 20 tax years).
Annual Tax on Enveloped Dwellings
There will also be a 50% increase (above inflation) for 2015/2016 on the maximum annual tax on enveloped dwellings (ATED), which is the charge on selected structures considered to be high-value UK residential property. It is calculated depending on the value of the property at 1 April 2012. However, owners can claim exemptions. The maximum annual charge for 2014/2015 is £143,750.
Income Tax Changes
Personal Income Tax Allowance
A £100 increase will also be implemented in the personal allowance in April 2015, which was initially set to be £10,500 for 2015/16 and is currently at £10,000, amounting to a total increase of £600. However, unlike in the past when such increases benefited basic rate tax payers only, this is going to be more beneficial for higher rate taxpayers as the basic rate tax band is the only one being reduced (from £31,865 to £31,785).
Individual Savings Accounts (ISAs)
There are two changes announced for ISAs. First, there will be a £240 increase in ISA allowance starting April 2015, which is currently at £15,000. Secondly, the ISA saver's spouse or civil partner will be able to receive additional ISA allowance upon the death of the saver.
About Carlton Crabbe
Carlton Crabbe was previously an Ultra High Net Worth and High Net Worth wealth manager at AES International. His blog posts remain relevant for expatriate investors.