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How will the UK budget changes affect expats' property investments?

The recent UK budget changes present significant implications for UK expatriates looking to invest in property abroad. With tax criteria shifting from domicile to residency, expats must consider how these alterations may impact their asset valuation and taxation. As the budget approaches April 2025, understanding these new frameworks will be crucial for capitalising on investment opportunities while mitigating potential tax liabilities.

Investors who have been residents in the UK for over ten of the last twenty years will experience a 40% inheritance tax on worldwide assets exceeding £325,000, potentially reshaping investment strategies. Additionally, expats who have recently relocated to countries like Portugal need to be aware of the ten-year tail period, during which tax implications on worldwide assets may still apply. This presents an opportunity for astute investors to reassess their holdings and plan accordingly.

Furthermore, those with UK pension funds should note that individuals over 75 may face a 40% inheritance tax on pension funds, marking a shift in financial planning for retirement. The upcoming changes suggest that UK expats must remain vigilant and informed to optimise their investments.

Collaboration with experts in expatriate wealth management, such as Robert Webb at Chase Buchanan, could provide valuable insights into effective tax strategies moving forward. Don't miss the chance to adjust your investment approach to align with these budget changes. For more detailed assistance, contact Robert at robert.webb@chasebuchanan.com.

Tuesday, 10 December 2024 - Fiscal
How will the UK budget changes affect expats' property investments?
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Budget

In the recent UK budget, two announcements were made that could have profound implications for British expats.


1. Domicile and UK Inheritance Tax (IHT)

Currently IHT is payable on the value of your worldwide assets (including Portugal) if you are a UK domicile. This is an outdated and complex principle that is about to be abolished. From April 2025, the domicile criterion will be replaced by a residence criterion.
The new criteria is divided into two parts:

  1. If you have been resident in the UK for more than 10 of the last 20 years, you will be classified as a long-term resident and will be subject to IHT on your worldwide assets. Tax will be 40% on asset value over £325,000. This applies to those who have recently arrived in Portugal
  2. The liability could last for 10 years after departure from the UK, but there is a tapering allowance called a tail. This applies to everyone currently residing in Portugal. Some examples:
  • Tax resident in Portugal for 10 or more years - no longer subject to UK inheritance tax except on UK assets if they are valued at more than £325,000
  • Tax resident in Portugal for 8 years - liability will last for another 2 years on your worldwide assets
  • Tax resident in Portugal for 4 years - liability will last for another 6 years on your worldwide assets

 

2. Pensions and UK IHT

Currently, there is no IHT payable on UK pension funds in the event of death. Everything changes! From April 2027, 40% IHT will be deducted from UK pension funds, even if you are living outside the UK.

  1. During the tail period, your pension fund will be included in your worldwide asset value
  2. After the tail has expired, only YOUR UK assets will be taxable and this obviously includes the pension value as long as the combined total is over £325,000
  3. If death occurs after age 75, not only will 40% IHT be payable on the pension fund, but UK beneficiaries could potentially pay income tax on the amount they receive. This amount could also be 40%!

These two new announcements on the UK's October 2024 budget are likely to have a significant impact for UK expats. If you require further information, please contact Robert Webb at Chase Buchanan, who is an expert in this area and can assist you.

Robert Webb - Private Weath Manager - robert.webb@chasebuchanan.com - +351 913 711 370 - chasebuchanan.com

 

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