New UK tax year (2019/2020): Implications for expats

We ticked over into UK tax year 2019/2020 a few weeks ago and this brought a resetting of thresholds and allowances for the next 12 months.

This post summarizes the changes that specifically affect expats.

Income tax

The amount of UK income that you can earn tax free (personal allowance) has increased by GBP650 to GBP12,500.

In addition, the threshold for higher rate income tax (40%) has increased from GBP46,350 to GBP50,000.

There have been discussions in the past about removing the personal allowance for non-resident UK nationals. However, as things stand today, expats can still take advantage of it.

Do remember that UK source income may need to be reported in your country of residence, even if it is not liable to taxation either there or in the UK.

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Capital gains tax

The annual capital gains tax (CGT) exemption increased from GBP11,700 to GBP12,000.

Remember that as of 6th April 2015, expats are liable for CGT on the sale of UK property (you can read more about this here).

Inheritance tax

As has been the case for a decade now, the threshold for inheritance tax (IHT) remains frozen at GBP325,000 per person.

The lifetime gift allowance is also unchanged, meaning that you can still pass on GBP3,000pa free of IHT, without the requirement to live for another 7 years.

Finally, the Residence Nil Rate Band has increased, as planned, from GBP125,000 to GBP150,000 per person (it is due to increase again to GBP175,000 next tax year).

This allowance provides extra IHT relief when passing on a main residence and the good news for expatriates is that overseas property can qualify too (although local inheritance taxes may still apply).

Pensions

State pension payments have increased in line with inflation. (i.e. by 2.6%). Despite Brexit uncertainty, it is currently expected that expats who have already settled in the EU should continue receiving these increases in future (in most non-EU countries, payment levels are frozen once they commence).

The lifetime allowance (the maximum amount that you can hold in combined UK pension schemes) also increased with inflation from GBP1.03 million to GBP1.055 million. Any accumulated pension above this level is liable to a 25% or 55% tax penalty unless you have previously sought protection.

Transfers to EU/EEA based Qualifying Recognized Overseas Pension Schemes (QROPS) remain tax free for EU residents. However, it is not impossible that, following Brexit, HMRC will expand the Overseas Transfer Charge to include EU residents.

Property

Buy-to-let tax relief continues to be cut. From 6th April 2019, landlords can only deduct 25% of their mortgage interest payments against rental income (before April 2017 it was 100%).

From next year, this relief will be phased out completely and replaced by a 20% mortgage interest rate credit. The result will be no net difference for basic rate tax payers but those falling into the higher rate bands will have substantially larger tax bills.