UK Chancellor Jeremy Hunt delivered his Spring Budget 2024 to parliament on March 6. Expected to be his last budget before the next General Election, it included various changes to taxation. Here we summarise the announcements that may affect UK nationals living in Portugal.
UK non-domiciled status abolished
The biggest announcement was the abolishment of the UK’s non-domiciled (‘non-dom’) status. This reform will go through the consultation process and is not expected to come into effect until April 2025.
Much of this reform affects foreign nationals living in the UK and their income and capital gains tax liabilities. But the domicile regime also has a significant impact on an individual’s liability to UK inheritance tax; a major issue and complexity for British expatriates.
The UK government plans to replace these non-domiciled rules with a residence-based regime for inheritance tax. It will consult on a 10-year exemption period for new arrivals in the UK and a 10-year ‘tail-provision’ for those leaving the UK.
It confirmed that the treatment of non-UK assets settled into a trust by a non-UK domiciled settlor prior to April 2025 will not change.
Other tax changes
- The higher rate of capital gains tax for residential property gains will reduce from 28% to 24% from April 6, 2024. The lower rate remains at 18% for gains falling within an individual’s basic rate band.
- The Furnished Holiday Lettings tax regime will be abolished from April 2025, eliminating the tax advantage for landlords who let out short-term furnished holiday properties over those who have longer-term tenants.
- The 0% band for the starting rate for savings income will be frozen at £5,000 for 2024 to 2025.
- The Spring Finance Bill will include legislation to restrict the scope of agricultural property relief and woodlands relief to property actually in the UK, starting April 2024.
- The main rate of primary Class 1 National Insurance contributions will be cut by 2 percentage points, from 10% to 8%, from April 6, 2024. Class 4 National Insurance contributions for self-employed individuals will be cut from 8% to 6%.
- An additional Individual Savings Account with a £5,000 allowance was announced. The government will consult on the details, but it will be in addition to the £20,000 that can be subscribed into an ISA.
- A consultation will seek views on the implementation of the Organisation for Economic Co-operation and Development’s (OECD) amendments to the Common Reporting Standard (CRS2), the international tax transparency regime for the automatic exchange of information on financial accounts.
Tax allowances remain frozen
Many of the UK’s tax allowances have been frozen since April 2021, instead of increasing with inflation, including the income tax personal allowance and higher rate threshold. As announced in previous budgets, the freeze is scheduled to last until April 2026 – and there was nothing in this 2024 budget to change this.
Freezing allowances has a similar effect as raising taxes for the government – hence often referred to as ‘stealth taxes’. As incomes and assets increase with inflation while allowances remain static, more people pay more tax than previously, an effect known as ‘fiscal drag’. The personal impact for taxpayers increases considerably when freezing is accompanied by high inflation.
Following the March budget, the Institute for Fiscal Studies (IFS) illustrated that the National Insurance cut, though very welcome, would not compensate for the impact of the other tax measures introduced over the government’s term in office.
The inheritance tax (IHT) nil rate band has been frozen at £325,000 since 2008, while the residence nil rate band remains at its 2021 level until 2026. This pushes more families into the IHT net and increases how much of their inheritance is lost to tax.
2023/2024 tax allowance reductions
The UK’s Autumn Statement 2022 included cuts to tax allowances and thresholds. With effect from April 2023:
- The income tax additional rate threshold was reduced from £150,000 to £125,140.
- The capital gains tax annual exempt amount was halved from £12,300 to £6,000 – and will be halved again to £3,000 from April 6, 2024.
- The dividend allowance was cut from £2,000 to £1,000 last year and will be cut to £500 from April.
Budgets and tax planning
British expatriates who retain UK assets could be impacted by some of these tax measures. If necessary, seek personalised cross-border advice for clarification and to establish if there is anything you can do to improve your position.
In any case, budgets, whether in the UK or Portugal, are a good prompt to review your tax planning to ensure it is up to date, suitable for a Portugal resident, and that you are not missing out on opportunities to save tax for yourself or your heirs.
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.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com.
Dan Henderson is a Partner of Blevins Franks in Portugal. A highly experienced financial adviser, he holds the Diploma in Financial Planning and advanced qualifications in pensions and investment planning from the Chartered Insurance Institute (CII). | www.blevinsfranks.com
