How does the UK Autumn Budget 2024 affect foreign nationals living in the UK?

Now that the UK Autumn Budget has been announced, expats already living (and planning to stay) in the UK have asked us questions about the changes to non-dom tax status, inheritance tax and implications for their assets.

In our recent webinar, we put the most frequently asked questions about the budget from expats living in the UK to our panel of tax, financial management and currency experts. Here, we outline the most important things you need to know.

Tax changes for foreign nationals living in the UK

Changes to non-dom status

As anticipated following the Tories’ budget in early 2024, the non-dom tax regime will be abolished on 5^th April 2025 and will be replaced by the new foreign income and gains (FIG) regime.

The length of time you have been living in the UK will determine whether you can access the new FIG regime and optimise your position for any further tax years.

There is still a window of opportunity between now and 5^th April for non doms to claim the remittance basis if it’s relevant to them. In this period, non doms might want to be thinking about whether they can shelter overseas income from UK tax by claiming a remittance basis or selling assets to rebase their value for capital gains tax purposes.

Temporary repatriation facility (TRF)

The new Temporary Repatriation Facility (TRF) rules will allow expats in the UK who have previously claimed the remittance basis to remit their pre-6^th April 2025 foreign income and gains and pay a reduced tax rate for a limited period:

• 12% tax rate in 2025/26 and 2026/27
• 15% tax rate in 2027/28

The rules mean some expats in the UK will need to consider realising income and gains before 5^thApril 2025 in order to shelter them from UK tax at today’s rates, remitting those funds later on at either a 12% or 15% rate.

If you are planning to bring a large amount of money into the UK, perhaps to purchase a property, working out your tax exposure will now be more straightforward after 5^th April 2025. If you were planning to remit before 5^th April 2025, you may now want to delay that, or at least work out today’s tax exposure versus your tax exposure if remitting under the TRF.

Additionally, you will need to think about interaction with double tax treaties and the fact that foreign tax credits won’t be available to offset against the TRF tax charge. 

Inheritance tax (IHT) changes and additional reforms

As an expat in the UK, you also need to be aware of the changes to Inheritance tax (IHT). A new concept of 'long-term resident' will be introduced from 6^th April 2025, which is defined as an individual that has been UK resident for at least 10 out of the last 20 tax years.

If you have been a UK resident for 10 years out of a 20-year window, you are now subject to UK inheritance tax. If you want to avoid this, then you may need to leave the UK before 5^th April 2025.

Alongside IHT and estate tax changes, there has also been a significant reform around the taxation of offshore trusts. If you are the beneficiary or the settlor of an offshore trust, then you need to review your arrangements now and establish whether there is any planning required to make things more straightforward for you post-5^th April 2025.

It has also been announced that inherited pensions will move into the scope of inheritance tax (IHT) from April 2027. This means pensions will be taken into account when calculating the overall value of an estate and IHT due.

Investments and savings for expats living in the UK

Following the tax changes announced in the budget, expats in the UK may want to consider restructuring their assets before 5^th April 2025, including reviewing how you hold your assets and thinking about using offshore bonds or family investment companies to hold investments.

If you are an expat who is resident in the UK, you have the opportunity to use ISAs, which are tax-free investment and savings allowances. The UK is one of the most generous jurisdictions for tax-free savings and investments, as you get a £20,000 allowance each year that can be invested or saved. If you plan to stay in the UK, you can build that up significantly by adding to it every year.

What you save in ISAs can complement your retirement income. After the tax-free lump sums available through UK pensions, any income that’s drawn down thereafter will have the marginal rate of tax applied. However, if you have a portfolio of ISAs, you can draw from these funds further down the line – either in increments or lump sums – and pay no tax at all.

In summary, foreign nationals living in the UK will want to ensure they have a firm understanding of how to save and invest in a tax-efficient way and to understand how their assets are going to be treated further down the line – and restructure if necessary.

Will there be any further changes to tax and investments that expats in the UK should anticipate?

The abolishment of the non-dom regime and the introduction of the FIG regime are definite, and it is now time for expats in the UK to take action accordingly.

With regards to pensions in the UK and the IHT announcement, there is likely to be a more lengthy consultation with HMRC. While there are unlikely to be any further policy changes, it is yet to be determined how pension assets are calculated and treated in the event of a death, and how they are passed on.