UK Budget 2024: What Every British Expat Needs to Know

The UK Budget 2024 has brought about a series of changes that directly impact British expats and those with connections to the UK. With shifts in Stamp Duty Land Tax (SDLT) on additional properties, a transition from domicile-based to residency-based tax, and updated rules surrounding pensions, capital gains, and inheritance tax, it’s a critical time to reassess financial strategies. These changes underscore the need for expats to take a proactive approach in managing tax exposure and securing long-term wealth.

Higher SDLT Surcharge on Second Properties

For British expats eyeing UK property investments, the 2024 Budget introduced an important adjustment to the Stamp Duty Land Tax (SDLT) surcharge on second homes and additional properties. The surcharge on these properties has increased from 3% to 4%, a move that significantly raises the acquisition costs for expats looking to purchase buy-to-let properties, holiday homes, or additional UK residences.

Under this updated regime, SDLT is calculated progressively based on the property’s price, with different rates applying to different portions of the price. For second properties, this additional 4% surcharge applies on top of the standard SDLT rates. Here’s how it works: for a property valued at ￡600,000, an expat would incur a total SDLT of ￡41,500—￡10,000 for the first ￡250,000 (at a 4% surcharge) and ￡31,500 for the remaining ￡350,000 (at 9%).

This increase in the SDLT surcharge is a notable shift for expats whose investment portfolios include UK property, as the added tax could reduce profitability, especially if rental yields don’t offset the increased upfront costs. This makes the timing of property investments and the structure of holdings even more critical. For expats keen to maintain UK property exposure without directly purchasing property, exploring alternative structures, such as offshore portfolio bonds, may offer tax advantages while avoiding the SDLT surcharge.

A Shift from Domicile-Based to Residency-Based Taxation

The move from a domicile-based tax system to a residency-based system is perhaps the most far-reaching change introduced in this budget. Under the old domicile-based framework, British expats who maintained a non-UK domicile status could avoid paying UK taxes on foreign income and assets, provided these funds were kept offshore and not remitted to the UK. This allowed expats to hold assets and generate income outside the UK without incurring UK tax obligations.

However, the new residency-based regime changes the rules. Now, expats who spend more than 183 days in the UK within a tax year will be considered UK tax residents, making their worldwide income and gains subject to UK taxes regardless of their domicile. This aligns the UK with many other global tax systems that assess tax based on residency, not domicile.

For example, an expat who holds offshore investments but decides to spend half the year in the UK could face tax obligations on all earnings generated outside the UK. This change in tax residency rules will likely require expats to carefully monitor the time they spend in the UK, as breaching the 183-day threshold could expose their worldwide income to UK tax. Given this shift, those with significant overseas investments should consider international tax-efficient vehicles, such as offshore trusts or bonds, to help manage tax exposure under a residency-based system.

This change also heightens the importance of planning for any future stays in the UK, as tax residency now takes priority over domicile in determining tax obligations. To protect offshore wealth from UK tax, it’s advisable for expats to work closely with a tax advisor who can help tailor their residency and financial arrangements accordingly.

Reduced Pension Allowances and Abolished Lifetime Allowance

The UK Budget 2024 also brought updates to pension allowances, impacting British expats who contribute to UK pension schemes or are considering an offshore transfer. The most significant changes include a reduction in the annual tax-free pension contribution allowance for high earners, now capped at ￡30,000, and the abolition of the Lifetime Allowance (LTA). Previously, the LTA limited the total amount that could accumulate in pension pots without incurring a 25-55% tax charge on excess funds. With this cap removed, expats with substantial pension funds can now grow their pensions without fear of breaching an overall limit.

However, the annual allowance reduction still requires close attention. High earners with an adjusted income above ￡240,000 will see their allowance taper down from ￡30,000 to a minimum of ￡10,000, depending on income. This tapering system makes it essential for expats to calculate their adjusted income accurately, as over-contributing could result in a tax charge that would negate some of the pension’s tax-saving benefits.

For expats in high-tax jurisdictions, considering offshore pensions may offer added flexibility, allowing them to maximise contributions while reducing the tax burden at home. The removal of the LTA is a welcome relief for those with larger pension pots, as it allows for unrestricted growth without punitive charges.

Changes to Inherited Pensions: New Tax Rules

A significant update in the 2024 Budget pertains to inherited pensions, which could affect British expats who have planned to leave pension wealth to their heirs. Previously, UK pensions could be passed to beneficiaries tax-free if the pension holder died before age 75, while pension wealth inherited from those who died after age 75 was taxed at the beneficiary’s marginal income tax rate.

New Inherited Pension Tax Rules: Under the new rules, all inherited pensions, regardless of the pension holder’s age at death, will be subject to income tax. This means that beneficiaries will pay tax on inherited pension income at their own marginal rate, potentially increasing the tax burden on heirs receiving these funds. For example, if an heir is a higher-rate taxpayer in the UK, they would pay 40% tax on the income derived from the inherited pension, a significant change from the previous tax-free treatment for heirs of those who passed away before age 75.

Implications for Expats: For British expats, the shift in tax treatment on inherited pensions means that strategic planning is essential if a UK pension forms part of the intended inheritance. With these changes, some expats may wish to consider transferring their pension into international structures or trusts that offer greater control over tax treatment upon inheritance. International bonds or trusts allow for the potential tax-free transfer of wealth across generations, shielding heirs from the increased tax exposure on UK pensions.

Capital Gains Tax (CGT) Free Allowance Reduction

The reduction in the Capital Gains Tax (CGT) allowance in the 2024 Budget has significant implications for British expats with UK-based investments, including property and stocks. The CGT-free allowance has been reduced to ￡3,000 from ￡6,000, meaning that more capital gains are now subject to tax. The CGT rates themselves remain unchanged, with residential property gains taxed at 18% for basic rate taxpayers and 28% for higher rate taxpayers, while other assets are taxed at 10% and 20%, respectively.

For instance, if an expat sells a UK property with a capital gain of ￡50,000, only ￡3,000 is now shielded from tax. Basic rate taxpayers would pay 18% on the remaining ￡47,000, resulting in a tax bill of ￡8,460, while higher rate taxpayers would pay 28%, leading to a ￡13,160 bill. This change highlights the growing need for tax-efficient structures to hold UK-based assets, as expats could face more considerable tax liabilities when realising gains.

Given the lower CGT allowance, expats may benefit from transferring UK assets into offshore structures, such as personal portfolio bonds. These structures offer the potential for tax-deferred growth, reducing CGT exposure while allowing investments to compound without immediate tax implications. For British expats, this tax change makes it increasingly valuable to explore alternative structures for long-term asset growth.

Inheritance Tax (IHT) Exposure with Fixed Thresholds

The budget retained the current Inheritance Tax (IHT) thresholds, with the Nil Rate Band (NRB) remaining at ￡325,000 per individual and the Residence Nil Rate Band (RNRB) at ￡175,000 for main residences left to direct descendants. While the rates and thresholds remain the same, inflation and rising property values mean that more estates could become subject to the 40% IHT charge on amounts above these limits.

For instance, an expat with a UK estate worth ￡600,000 would face a 40% tax on the ￡275,000 over the NRB, resulting in an IHT bill of ￡110,000. Expats hoping to leave UK assets to non-UK-resident beneficiaries may want to explore trusts, offshore bonds, or other international structures that help shield their estate from UK IHT. By placing assets into these structures, expats can limit IHT exposure while preserving a larger portion of wealth for their heirs.

Adjusted Income Tax Bands and Potential Increases for UK Income

Lastly, the budget adjusted income tax bands to account for inflation, which impacts expats who continue to receive income from UK sources, such as rental income, dividends, or pensions. Income up to ￡50,270 remains in the basic rate band, taxed at 20%, while income between ￡50,271 and ￡150,000 is taxed at the higher rate of 40%. Income above ￡150,000 falls into the additional rate band, taxed at 45%.

For expats with UK rental income of ￡75,000, for example, the first ￡50,270 would be taxed at 20%, while the remaining ￡24,730 would be taxed at 40%, resulting in a total tax bill of ￡9,892. For those living in low- or no-tax jurisdictions, these UK tax rates could significantly reduce the net income derived from UK assets, making it essential to consider tax-efficient income strategies. Moving income-generating assets to offshore bonds, for instance, may help minimise UK tax exposure by deferring tax until the income is brought into the UK.

Final Considerations for British Expats

The UK Budget 2024 brings a series of important updates that require British expats to carefully review their financial plans. From the increased SDLT surcharge on second properties to the shift to a residency-based tax system, and adjustments in CGT, pension, and inheritance tax, expats need a proactive approach to tax efficiency. For those considering a future return to the UK or maintaining substantial UK assets, it’s now more important than ever to consult with a financial advisor to ensure that tax exposure remains manageable.

With strategic adjustments, whether by monitoring UK residency days, exploring offshore structures, or restructuring income sources, British expats can protect their wealth, stay ahead of these new tax obligations, and secure a stable financial future. If you’re unsure how these changes affect your situation, seeking personalised advice is a key step in ensuring you adapt smoothly to the new UK tax landscape.

Stay ahead of the game, get expert guidance on how the UK Budget 2024 impacts your wealth as a British expat. Reach out today to protect your assets and optimise your financial future!