Both the 2024 tax reforms and the latest round will prove painful over time. The freeze on income tax allowances acts as a stealth tax, quietly increasing your liability over time. Other hikes are backloaded, set to bite later in this parliamentary term. In the future, your beneficiaries will probably pay much more inheritance tax than you ever imagined.
If you live in Portugal, think carefully about leaving assets behind in the UK since they will be unnecessarily exposed to UK taxes. With the UK’s tax burden projected to hit a record 38.3% of GDP by 2030/31, now is the time to act to protect your wealth and legacy.
An income tax rise by another name
Chancellor Rachel Reeves may have avoided a headline-grabbing rate hike but extended the freeze on personal allowance and higher-rate thresholds. The result? A stealth tax with the same effect.
As wages and asset values rise with inflation while allowances stay static, more of your income falls into taxable brackets — an effect known as fiscal drag. You pay more tax, and less of your income is available to spend or invest.
If thresholds had risen with inflation as they are meant to, they would look very different today – and even more so by 2031. The £12,570 personal allowance, for example, would now be £15,480, and projections for 2031 have it at £17,490.
The Office for Budget Responsibility estimates that this 10-year freeze will raise £56 billion, with £12 billion coming from Reeves’ extension alone. Since 2021, 8.3 million more people pay a higher rate – a 45% increase. By 2031, another 5.2 million will pay income tax and 4.8 million will hit the 40% band.
Investment income
Tax rates on savings, capital gains, dividends and property have all risen. It’s also worth highlighting that neither the savings allowance nor nil-rate savings band have increased since they were introduced in 2016 and 2015.
It’s worse for dividends and capital gains. The dividend allowance was introduced in April 2016 at £5,000 but is now £500. The capital gains tax annual exempt amount was cut from £12,300 in 2022/23 to £3,000 from April 6, 2024.
Inheritance tax
Inheritance tax receipts have been on an upward path for 20 years, a trend which will accelerate in the coming years.
The nil-rate band was frozen at £325,000 in 2009, and the 2025 budget extended it to 2031. If it had risen with inflation, it would be around £517,000. For a couple fully utilising both personal nil-rate bands, that’s an extra £384,000 you could have left to your heirs tax free. And there is another five years of freeze to go. The residential nil rate band helps improve the tax liability for lineal descendants, but it is frozen until 2031 and tapers away for estates over £2 million.
To make matters significantly worse, UK pension funds start to form part of your estate for inheritance tax from April 2027.
While British expatriates may currently be able to keep UK assets below the IHT threshold, this may be impossible once pensions are included. In most cases, your UK inheritance tax liability will cover worldwide assets for 10 years after leaving UK, but after that, only assets situated in the UK remain liable. This presents significant estate planning opportunities if you dispose of UK assets.
Property – a tougher tax environment
It may be time to reconsider keeping UK property, especially investment property, if you live in Portugal permanently.
The UK introduced a series of tax and regulatory changes over the past decade that make owning and letting out residential property significantly less attractive. These reforms have increased costs, reduced tax efficiency, and introduced greater administrative and compliance burdens. UK residential property is also now fully within the scope of inheritance tax.
These combined pressures have made it harder to achieve the returns seen a decade ago. Profit margins are tighter, risks are higher and administrative workloads heavier. Many landlords now conclude that the effort, cost and risk no longer justify the returns. Your capital could be invested much more effectively and tax-efficiently elsewhere.
Take control of your tax future
The UK’s tax landscape is shifting in ways that will quietly erode wealth over time. From frozen allowances and fiscal drag to harsher rules on pensions, property and inheritance, these changes demand proactive planning. Waiting until reforms fully bite could cost you – and your heirs – far more than you expect.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com.
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.
