On 17th November 2022 Britain’s fourth Chancellor of the year, Jeremy Hunt, delivered his Autumn Statement. With the UK experiencing a year of political and economic chaos, tax rises and spending cuts were expected. Here’s a roundup of the main points likely to affect expatriates living in Asia.
UK tax rates unchanged, but thresholds frozen
While headline rates of income tax, capital gains tax and national insurance contributions remain unchanged, most tax thresholds and allowances have been frozen until the end of the 2027/28 tax year. With inflation raging and taxable incomes likely to rise, this effectively means that increasing numbers of taxpayers will be drawn into higher tax thresholds. Hunt pointed out that despite this big freeze, Britain’s allowances remain more generous than several other leading nations.
Reduction in income tax additional rate threshold
This reduction will affect many middle-income taxpayers. The income tax additional rate threshold is the threshold above which the top income tax rate of 45% (or 39.35% for dividends) applies. From 6th April 2023, it will fall from £150,000 to £125,140.
Those who risk falling into the top income bracket may be able to mitigate additional tax payments by making additional pension contributions or entering salary and/or bonus sacrifice arrangements with their employer. Find out how pensions have become even more attractive to UK taxpayers here.
While many expatriates don’t pay UK income tax, this announcement may be relevant if you are thinking of repatriating. If you are, it may be worth chatting to a financial adviser about the best way forward when negotiating a salary deal.
Reduction in capital gains tax annual exempt amount
A reduction in the capital gains tax (CGT) annual exempt amount from £12,300 to £6,000 from 6th April 2023 and to £3,000 the following year contradicts the 2021 budget which proposed a freeze at £12,300 until April 2026.
This change could affect expatriates selling second homes in the UK.
Inheritance tax (IHT) thresholds frozen for another two years
The IHT nil-rate band was set at £325,000 in 2009 and Hunt announced that it will remain frozen at the same sum until April 2028. The residence nil-rate band, an additional IHT allowance for homeowners leaving a home to a direct descendant, is also frozen at £175,000.
These freezes will affect many UK-domiciled expatriates as inflationary growth of asset values draws increasing numbers into the IHT net. There are steps that you can take to mitigate a large IHT bill and we strongly advise you to discuss this with your adviser if your estate is valued above the threshold.
Non-dom status
Contrary to expectation, Hunt did not make any major announcements targeted at non-UK domiciled taxpayers. That said, non-dom status remains something of a political hot potato and commentators expect changes in the future.
New fiscal rules on borrowing
Hunt’s fiscal rules on borrowing have been viewed as a nod to money markets that the UK ‘will always pay its way’. According to the Institute of Fiscal Studies (IFS) ‘The Chancellor will be hoping that his clear commitment to fiscal responsibility and the independence of the Bank of England, his full involvement of the Office for Budget Responsibility, and his less pugilistic approach to economic policy-making will be enough to restore the UK’s tattered international reputation. Let’s hope so.’
The initial market response to the Autumn Statement was not, however, positive with the pound falling and the FTSE 100 down. Analysts at our investment management partner, Evelyn, were more upbeat:
‘…. it does appear that the Chancellor has achieved his primary aim, with financial markets’ reaction to the Statement proving relatively muted. The yield on government bonds – typically a barometer for the credit-worthiness of the UK Government – remained largely unchanged, having already dropped a long way following its spike after Kwasi Kwarteng’s ‘mini-budget’. Sterling dropped slightly but has increased 14% since its low point relative to the US dollar on the 26 September’.
If you have questions about any of the issues raised in this article, please contact your financial adviser.
If you don’t have a financial adviser and are looking for professional advice on your finances as a UK expatriate in Asia, get in touch. Wherever you are based, Infinity can help you plan for a secure financial future.
A leading provider of expat financial services and wealth management services across Asia.
