The UK Chancellor, Rachel Reeves, presented her much-anticipated first Budget on October 30. It aims to strengthen the foundations of the economy and deliver change by protecting working people, fixing the NHS and rebuilding Britain. As part of this plan, it includes £40 billion in tax rises.
Pensions
Triple lock – The State Pension Triple Lock will be maintained for the duration of this parliament. The basic and new State Pension will increase by 4.1% in 2025-26, in line with earnings growth.
Pension funds subject to inheritance tax – From April 6, 2027, most unused pension funds and death benefits will be included within the value of a person’s estate for inheritance tax purposes. The government has said this will apply to UK-registered pensions and QNUP, but has not yet mentioned QROPS.
Overseas Transfer Charge extended
The Overseas Transfer Charge (OTC) is a 25% tax charge on transfers to QROPS, unless an exclusion from the charge applies. To address the risk of individuals receiving double tax-free allowances, the government has removed the exclusion for transfers to QROPS in the European Economic Area or Gibraltar, with effect from October 30, 2024.
The provision impacts all individuals (other than Malta and Gibraltar residents for a QROPS in their jurisdiction) wishing to transfer their pension to a QROPS established in the EEA or Gibraltar. We believe this to be an over-extension of what was intended, since the Policy Paper published with the Budget states that “it will not affect individuals relocating to an EEA country or Gibraltar bringing their pension savings with them. This is because an exclusion will apply for members who are resident in the same country as that in which the QROPS receiving the transfer is established…” However, this statement does not account for the fact that, for retirees, there are no QROPS products available in countries other than Gibraltar and Malta.
We hope this will be rectified, but only time will tell.
Domicile
The overall plan is to move to a residence-based tax system for all from April 6, 2025.
Domicile and income tax – For individuals who have not been UK tax resident in any of the 10 consecutive years prior to their arrival, the new regime will provide 100% relief on foreign income and gains for new arrivals in their first four years of tax residence.
Domicile and inheritance tax – The current domicile-based system of inheritance tax will be replaced with a new residence-based system. This will affect the scope of non-UK property brought into UK inheritance tax for individuals and trusts.
An individual will be in scope for inheritance tax on non-UK assets where they are classified as a long-term UK resident, i.e., resident in the UK for at least 10 out of the last 20 tax years.
On leaving the UK, individuals will remain in scope for inheritance for between three and 10 years, depending on how long they lived in the UK.
For trusts, domicile test will be replaced with the long-term residence test. Non-UK settled assets will only be excluded property at times where the settlor is not classified as a long-term resident.
Income tax and National Insurance
The government will stop the freezing of income tax and National Insurance contributions thresholds from April 6, 2028. These thresholds will then be raised in line with inflation.
The rate of employer National Insurance contributions is increasing from 13.8% to 15%.
Capital gains tax (CGT) changes
- For assets other than real estate, the main rates of capital gains tax will increase from 10% and 20% to 18% and 24%, respectively, for disposals made from October 30, 2024. The rates for real estate are unchanged.
- For personal representatives and trustees, CGT increased from 20% to 24% for disposals made from October 30, 2024.
- For individuals with assets that qualify for Business Asset Disposal Relief and Investors’ Relief, CGT will change from 10% to 14% for disposals made from April 2025, and to 18% from April 2026.
For Investors’ Relief, the lifetime limit of £10 million of qualifying gains reduces to £1 million for disposals made from October 30, 2024.
Inheritance tax (IHT)
The freeze on inheritance tax thresholds has been extended a further two years, to April 2030.
The agricultural property relief and business property relief is being reformed from April 6, 2026.
Budgets such as this are a good prompt to review your financial planning to establish if it needs updating to protect you and your family from paying more tax than necessary.
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
By Sharon Farrell
|| features@algarveresident.com
Sharon Farrell is a Partner of Blevins Franks in Portugal.
www.blevinsfranks.com
