Expat Pension – Summer Budget 2015 – What’s changed?
On 8th July 2015, Chancellor of the Exchequer George Osborne delivered the UK’s first conservative-only budget speech since November 1996.
In March, under the coalition government, he outlined legislation to allow annuity holders to assign their income to a third party; to allow inherited annuities to remain tax-free for beneficiaries; and to reduce the lifetime allowance to £1 million from April 2016.
Here we look at the measures introduced on pensions in the summer budget, any direct implications for UK expats living abroad, and how they alter the picture that was painted in the spring.
Permanent non-dom status abolished, the chancellor made an impassioned pledge that anyone domiciled in the UK for 15 of the past 20 years will no longer be able to adopt non-dom status as a tax avoidance measure.
“Anyone resident in the UK for more than 15 of the past 20 years will now pay full British taxes on all worldwide income and gains,” Mr Osborne said.
For UK expats living abroad, especially those who have only just moved, that could have big implications for everything from pensions to inheritance tax – making the measures announced on both areas particularly important.
Expat Pension – Pension tax relief
Mr Osborne outlined cuts to inheritance tax (IHT) – including estates up to £1 million that can pass to the deceased’s children with no IHT, and the abolition of IHT on family homes.
He added that these cuts will be “more than paid for” through the changes that are being made to high-earners’ pension tax relief, whose annual allowance will taper away to a minimum of £10,000 from next year.
Pensions like ISAs?
The chancellor suggested – rather than formally announcing – that pensions in the future might be treated more like ISAs, with deposits made from taxable income receiving government top-ups, and generating a tax-free income at the point of withdrawal.
Reforming pension tax relief
To coincide with the summer budget, HM Treasury published a new consultation paper on reforming pension tax relief, which is due to run until 30th September 2015.
In his foreword to the consultation document, the chancellor wrote that recent pension reforms have given people more control over accessing their pension.
But he added that increasing life expectancies and a shift from final salary pensions to defined contribution schemes mean it is time to look again at pensions, to ensure working-age people are still incentivised to save towards their retirement.
Responses are welcome from individuals, employers and consumer groups – an opportunity perhaps for UK expats to express their views on any issues that might affect overseas pension transfers following the reforms.