Last week I looked at the reforms to personal tax, savings and pensions announced in the UK Budget.
Although the pension news was the biggest element, there are other aspects that may affect expatriates.
Capital gains tax
The capital gains tax annual allowance increases to £11,000 on 6th April 2014.
The 2014 Finance Bill will introduce legislation to ensure that capital gains made by a remittance basis user in the overseas part of a split year are not charged to tax. This is a welcome amendment, and is expected to apply retrospectively.
The Chancellor’s Autumn Statement had included the announcement that the exemption from UK capital gains tax afforded to long-term non-residents on the disposal of UK property will be withdrawn from April 2015. This will affect many British expatriates who retain UK property. The budget itself did not contain any new information on how it would work, but a consultation was later published on 28th March. I will cover this in a later article.
One point to note, though, is that it looks like only gains arising from 6th April 2015 on disposals of UK-sited residential property will be taxed. We are still at the early stages of the consultation, however, so will need to wait for the legislation to published for any certainty.
The second change announced in the Autumn Statement comes into effect this April. The Principal Private Residence Relief – the period of deemed ownership where a property has been the main home and is exempt from capital gains tax – is reduced from 36 months to 18. This affects expatriates who delay selling their UK home after moving abroad.
Property tax
Where companies own UK residential property valued at over £2 million, there is an annual tax charge – Annual Tax on Enveloped Dwellings (ATED) - currently between £15,000 and £140,000, depending on the value of the property.
New legislation will reduce this threshold to £500,000 and introduce a new range of annual charges. This is effective 1st April 2015 for properties valued at between £1 million and £2 million, and from April 2016 for properties between £500,000 and £1 million.
The charge will be extended to a broader range of residential property, so that eventually enveloped residential properties worth from £500,000 to £2,000,000 will be subject to the ATED, and brought within the related capital gains tax charge.
With immediate effect, the 15% rate of Stamp Duty Land Tax applying to purchases of residential property by companies will be extended to properties worth £500,000 or more.
Note that since non-residents selling UK real estate are likely to be liable to capital gains tax from 6th April 2015, anyone wishing to restructure out of current enveloped structures will need to focus on doing so in good time before next April.
Inheritance tax
UK inheritance tax is charged on the net value of a person’s estate, after deducting the nil-rate band, any reliefs and exemptions, and outstanding liabilities. Property situated outside the UK belonging to, or settled by, a non-UK domiciled individual is ‘excluded property’ and does not form part of a person’s estate.
Legislation introduced last year allows a deduction for a liability only if it has not been used to acquire, maintain or enhance excluded property, except in a few specified circumstances.
Foreign currency deposits in UK banks are not taken into account in determining the value of a person’s estate if the depositor is non-UK domiciled and non-UK resident at death.
Legislation will be introduced in Finance Bill 2014 to treat foreign currency accounts held in UK banks in a similar way to excluded property for the purposes of how liabilities are deducted for inheritance tax. This measure may affect expatriates who hold foreign currency accounts in the UK.
As announced in the Autumn Statement 2013, various measures will be introduced to simplify the inheritance tax treatment of relevant property trusts by aligning the filing and payment dates and treating retained income as accumulated after five years when calculating the ten year anniversary charge.
These changes could have a significant impact on the inheritance tax payable by existing trusts and no grandfathering provisions were proposed in the previous consultation. The majority of the changes are deferred until April 2015, pending further consultation. The latest round of consultation has not yet been published.
This is just a summary, and more detail tends to emerge following the budget. It is important to seek specialist advice to clarify how you are affected, particularly when it comes to the interaction between UK and local Portuguese taxation, and if you want to explore your new pension options.
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