UK Autumn Budget 2024: Anticipating Key Changes in IHT, Pensions, and more.

Sign up to our UK Autumn Budget Reactions webinar happening this 5th of November now. Click here for details.

As the UK Autumn Budget approaches, individuals with ties to the UK face significant changes in tax regulations. These potential reforms are set to affect inheritance tax (IHT), capital gains tax (CGT), pensions, and domicile status. At Melbourne Capital Group, we recently hosted a discussion between Neil Chadwick, Head of Technical at RL360, and Jamie Bubb-Sacklyn, Estate Planning Specialist at Melbourne Capital Group, to explore these upcoming changes and how they might impact expatriates, UK residents, and non-residents alike.

Below is a breakdown of the key highlights from our discussion, fully aligned with the latest insights into the UK Autumn Budget.

UK Inheritance Tax (IHT): Changes and Challenges

IHT continues to be a significant concern as thresholds remain frozen, meaning more estates fall within the taxable bracket. Currently, estates over £325,000 are taxed at 40%, and the tax collected in 2023/24 exceeded £7.5 billion. As property values rise, this trend is expected to continue, particularly with no expected increases to IHT allowances or exemptions.

The upcoming budget could also bring major changes to the concept of domicile. A shift towards a residency-based test for IHT and other taxes is expected. Under the proposed rules, individuals who have lived in the UK for 10 or more years may face IHT on their worldwide assets. Furthermore, these individuals could remain exposed to IHT for up to 10 years after leaving the UK.

This shift is particularly concerning for UK-domiciled (or formerly domiciled) individuals who have lived abroad for over 10 years. Whether they will be exempt from IHT under the new rules remains unclear. Trusts, which are commonly used by non-domiciled individuals to shelter assets from IHT, may also lose their protection under the new regime. These changes could significantly impact estate planning strategies for expatriates and non-residents with UK ties.

Capital Gains Tax (CGT): Aligning with Income Tax Rates

Capital gains tax (CGT) is another area of focus in the upcoming budget. Currently, CGT is applied at rates of 10% and 20% (18% and 28% for property), but proposed changes could align CGT rates with income tax rates, potentially pushing the top rate to 45%. This would represent a significant increase and may prompt individuals to consider selling assets before the new rates come into effect.

For non-residents, CGT has applied to UK property gains since April 2015, and the proposed changes may lead to more stringent taxation on assets. Individuals looking to sell UK assets, particularly property, may want to act sooner rather than later to benefit from current rates and reliefs.

Pensions: Uncertainty Around the Lifetime Allowance

The removal of the Lifetime Allowance (LTA) on pensions by the Conservative government was a welcome change for many, allowing individuals to accumulate unlimited pension savings without facing additional tax charges on excess funds. However, this reform is under threat, with speculation that the Labour government may reintroduce the LTA or impose stricter limits.

Additionally, higher-rate tax relief on pension contributions may be reduced to a single rate of 20%, limiting the tax relief benefits that higher earners currently enjoy. Such changes could significantly alter pension strategies for UK nationals and expatriates alike.

For expatriates residing in Malaysia, there remains a favourable agreement under the UK-Malaysia double taxation treaty, allowing UK pension income to be withdrawn tax-free if you are a tax resident in Malaysia. This is an opportunity expatriates should leverage to optimise their pension withdrawals and minimise tax liabilities.

Domicile Status: What Does the Future Hold?

The most significant reform proposed in the Autumn Budget is the abolition of the non-domicile tax regime, replacing it with a residency-based test. Under this system, individuals who have been UK residents for more than 4 years would face UK taxes on their worldwide income and gains, with an IHT exposure for up to 10 years after leaving the UK.

This would end the current remittance basis of taxation for non-domiciled individuals from April 2025, further tightening the tax net on expatriates and those who have historically used non-domicile status to shelter assets from UK tax. The proposed new 4-year foreign income and gains (FIG) regime would only offer tax relief on non-UK income for a limited time, making long-term tax planning more complex.

Trust structures that currently protect non-domiciled assets from IHT may also be impacted. From April 2025, protections for income and gains within settlor-interested trusts are expected to be removed, making those assets subject to tax.

Planning for the Future: What You Can Do Now

Given the sweeping changes expected in the UK Autumn Budget, it is essential to act now and review your financial strategies. Here are some key steps you can take:

• Estate Planning: If you have UK-based assets, or are considering returning to the UK, review your estate plan to ensure it is robust enough to handle the upcoming changes to IHT.

• Capital Gains: Consider advancing the sale of UK assets to benefit from current CGT rates, especially if you are a non-resident. Acting now could help avoid the higher tax rates expected in the near future.

• Pension Planning: Keep an eye on any potential changes to the Lifetime Allowance and higher-rate tax relief. Expatriates in Malaysia should explore the tax-free withdrawal opportunities under the double taxation agreement.

• Domicile Status: The move towards a residency-based tax system will have significant implications. Non-domiciled individuals should review their tax planning strategies and consider the impact of the proposed 10-year IHT rule after leaving the UK. Trust structures may also need to be revisited to ensure assets are protected under the new rules.

At Melbourne Capital Group, we are here to help you navigate these changes and provide personalised advice on how to protect your assets and financial future. With careful planning, you can mitigate the effects of the upcoming tax changes and ensure your wealth remains secure. Contact Jamie Bubb-Sacklyn at jamiebubb@melbournecapitalgroup.com for more information.

The information contained is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation. We have done our best to ensure that the information provided in this document provide valuable information. Regardless of anything to the contrary, nothing available on or through this document should be understood as a recommendation that you should not consult with a financial professional (or other professional advisor) to address your particular information. We expressly recommend that you seek advice from a professional. Melbourne Capital Group and its representatives or affiliated persons do not provide tax, legal, or accounting advice. This guide has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Melbourne Capital Group does not and cannot accept any responsibility for any action taken or refrained from being taken as a result of this information.

Join our experts Toby Tallon, Private Client Tax Services at Evelyn Partners, and Jamie Bubb-Sacklyn, Private Wealth Manager at Melbourne Capital Group for a post-budget review. We’ll discuss the key impacts of Chancellor Rachel Reeves’s first Budget on expatriates and those with U.K. assets, and how these changes could affect your financial planning. Sign up now.