How Will The Autumn Budget Affect You?

The UK Autumn Budget on October 30th this year is attracting a great deal of attention.

The new Labour government is widely touted to be set on filing the ￡22bn fiscal black hole by upping tax liabilities.

Increasing the rate of income tax, national insurance and VAT have already been ruled out, making it harder to balance the books. That also suggests there will be tax rises elsewhere,

No one has a crystal ball, but as with any Budget, we do have the ability to take an educated guess and predict where we see changes happening.

For expats capital gains tax (CGT) and inheritance tax (IHT) are both particularly relevant and both potentially in the firing line.

Capital Gains Tax (CGT)

There’s been a lot of noise about CGT.

How does CGT work?

CGT is applied to a wide range of assets, including:

• Profits made from selling assets, including inheritances.
• Assets and shares transferred following a divorce or civil partnership.
• Some gifted assets.
• All types of property sales that are not otherwise exempt.

Many British expats hold residential property in the UK, either as a long-term investment, to ensure they have somewhere to live if they return to the UK, or to gift to children. Upping the CGT liability will obviously eat into any equity in that property.

You'll pay 24% against taxable gains on a residential if that amount is more than the basic tax rate band. The rate falls to 18% for gains below this threshold.

All other gains are taxed at 10% or 20% as a flat rate.

The higher 20% rate applies to any chargeable gain after deducting allowable losses or expenses that remain above the basic tax rate.

Inheritance Tax (IHT)

Changes to IHT are also on the table.?

How does this work?

The current rate is 40% on the part of an estate above the individual ‘nil rate band’ threshold of ￡325,000.

This can be doubled to ￡650,000 by those who are married or in a civil partnership, who can pass on their unused nil rate band to their spouse. So, the combined threshold for a couple would be ￡650,000.

Labour’s only comment on IHT so far is to confirm it will “end the use of offshore trusts to avoid inheritance tax”, mainly targeted at those living but not domiciled in the UK.?

The potential is to raise the overall rate of IHT, reduce the current thresholds or change other tax reliefs.

IHT is a complex area and there are lots of other tax reliefs that can currently be applied such as money to help with a wedding, business assets, AIM-listed shares and farmland.?

As things stand, the following rules apply:

• Once an estate reaches ￡2 million, the ‘own home’ allowance starts being removed by ￡1 for every ￡2 above this threshold. It vanishes completely by ￡2.3 million.?
• ?You can give away ￡3,000 a year, plus make unlimited small gifts of ￡250, free from inheritance tax, to reduce the value of your estate.
• Amounts above this fall under the so-called seven-year rule, meaning that if the person making the gift survives for another seven years they become tax-free.

If you would like to discuss any concerns about the potential changes and your finances, please get in touch today.