How the UK’s election outcome could impact your finances as a British Expat

Insight | by Stephen Kiggins
Downing Street

As polling stations open this morning across the UK, Labour holds a significant lead [of circa 20 percentage points] in every opinion poll and look to be on course to secure a significant majority in Parliament.

So, on the basis of their election manifesto, what tax changes can we expect to see a Labour government implement, and what financial planning implications will these have for expats?

UK Pensions

Lifetime Allowance (LTA)

The abolition of the Lifetime Allowance (LTA) in the chancellor’s 2023 Spring Budget was a welcome surprise for many, removing the £1,073,100 limit on the amount of cumulative UK pension savings that could be drawn by individuals without incurring an additional tax charge.

And whilst Labour were initially vocal in their opposition to the abolition of the LTA, indicating that they would re-instate it if they won the 2024 election, they have subsequently softened their stance, acknowledging that the practicalities of doing so will be extremely difficult.

However, with shadow chancellor Rachel Reeves promising a “pensions review” if Labour are elected, a degree of uncertainty hangs over the possible re-introduction of the LTA, and this has raised the question for some expats as to whether they should consider crystallising their UK pensions earlier than otherwise planned [or consider transferring their UK pension assets to a QROPS to trigger a crystallisation event] to avoid the potential consequences of the LTA being re-introduced at some point in the future. When considering this option however it’s imperative that all relevant factors are taken into consideration and are discussed with a qualified financial advisor and pension transfer specialist.

Pension Commencement Lump Sum (PCLS)

Further to a BBC radio interview [on Friday, 28 June] in which Keir Starmer was asked whether the 25 per cent tax free Pension Commencement Lump Sum [PCLS] withdrawal from a UK Pension would be at risk from a Labour government, a Labour spokesman subsequently went on record to clarify and confirm that “The ability to withdraw 25 per cent of your pension as a tax-free lump sum is a permanent feature of the tax system and Labour are not planning to change this”. Asked whether Labour was making a solid promise not to change the current system, as opposed to simply having “no plans” the spokesman said, “It’s a firm commitment.”

UK State Pension

Triple Lock policy

Both the Conservative and Labour parties have committed to keeping the 'Triple Lock' on the UK State Pension. This ensures that it rises each year by whichever is the highest between average annual earnings growth from May to July, the Consumer Price Index (CPI) inflation rate in the year to September, or 2.5 per cent. New and Basic State Pension payments increased by 8.5 per cent in April. Over the current financial year, the full New State Pension is worth £221.20 each week, some £11,502 in annual payments.

The UK State Pension is paid to expats worldwide who have reached the qualifying age and have paid enough National Insurance contributions.

However, you will only get an the Triple Lock indexed increase every year if you live in:

'Frozen' UK State Pensions

None of the political parties have addressed the issue of 'frozen' State Pensions in their manifestos ahead of the General Election. An estimated 490,000 expats living in countries that do not have a reciprocal agreement with the UK (including Australia, Canada, South Africa, New Zealand, India, Hong Kong, Dubai, Antigua, Malaysia and Thailand) are currently affected, with the level of their UK State Pension payments ‘frozen' at the level of the first amount paid to them in that country, with those payments not subsequently benefitting from any increases in line with "Triple Lock" on an annual basis, as would be the case if they were UK resident - even if the individual had paid the maximum number of UK National Insurance qualifying years during their working life. Commenting on the Labour manifesto, Ms Melville-Gray [spokesperson for the International Consortium of British Pensioners], said: “While we commend the Labour commitment to review the pensions landscape and improve pensions outcomes, today’s [manifesto] announcement remains a missed opportunity to address the longstanding ‘frozen pensions’ scandal.“ “Labour backed an end to this cruel policy in 2019. It is disappointing that this ‘Government in waiting’ has made no such pledge today. We sincerely hope that Labour will stand up to its commitments, and conducts a full review of the State Pension to include addressing this deeply harmful, purely arbitrary policy.”

UK State Pension Age

State Pension age is due to be independently reviewed after the election. The State Pension age is currently 66 and is due to increase to 67 by 2028, and to 68 by 2046.

Inheritance Tax (IHT)

After occupying a prominent part of the policy debate over the past 12 months, it had been reported that (in the same way as with the Pensions Lifetime Allowance) the Conservative Party was considering scrapping the current IHT framework altogether as a potential vote winner - with Chancellor Jeremy Hunt declaring the tax “unfair” and “profoundly anti-Conservative”. However, any commitment to abolish (or indeed even reduce) IHT has ultimately been omitted from the Conservative’s election manifesto.

And whilst Rachel Reeves has previously said that she has "no plans" to change the current IHT thresholds or rates [and the only reference to IHT in Labour’s manifesto was in relation to ending the use of offshore trusts to avoid IHT], the possibility of reforming this tax in the future remains a distinct possibility.

We will continue to monitor Labour’s position on IHT very carefully as it evolves post-election and update you accordingly.

Stamp Duty Land Tax (SDLT)

Labour has confirmed that for UK non-residents it will increase the current rates [detailed below1] of Stamp Duty Land Tax on purchases of residential property by 1%.

SDLT Rates

Capital Gains Tax (CGT)

Rachel Reeves previously indicated that Labour had "no plans" to increase Capital Gains Tax (CGT) receipts by aligning CGT rates with Income Tax rates, as had been widely speculated, but this does not rule out the possibility of CGT rate increases in the future to align the taxes more closely.

For expats with a UK residence, or one or more buy-to-let investment properties that they potentially intend to sell in the future, this will need to be monitored carefully and the potential negative impact it could have on the funds realised from those assets understood as part of your financial planning.

We will continue to keep a close eye on the policy announcements and the evolving tax landscape in the coming weeks to provide you with relevant updates. New governments in reality don't know their fiscal status until they are in situ, but perhaps the wisest course of action as an expat (as with any uncertainty in respect of shifting UK fiscal policy and how this could impact your finances) is to plan for the worst and hope for the best. By looking at your UK pensions and assets and understanding your options as part of your international financial planning, you will be in the best possible position to optimise their growth and mitigate any potentially unnecessary UK tax liability in the future.

If you would like to speak with an advisor to discuss your financial planning and wealth management, please get in touch to schedule a meeting.

1 Source:

This communication is for information purposes only and does not constitute financial, legal, or tax advice. To receive advice on financial planning, wealth management and pension solutions, please schedule a meeting with one of our Financial Advisors and Pension Specialists.

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