George Osborne delivered his first Budget of the new government early last month. Free from the shackles of coalition, this was the first Conservative Budget for 18 years.
Prior to the Budget, the expectation was that we would see reforms to inheritance tax, reforms to non-domicile status, and cuts to welfare spending. What has been delivered has not disappointed in those areas, but Mr Osborne has excelled himself with vast swathes of additional measures also introduced. A number of these themes are of particular relevance to British expatriates.
Taxation of Dividends
If you receive dividends from shares in UK companies or funds, from 6 April 2016 a new special allowance will be introduced, allowing you to receive dividends of up to GBP 5,000 per year without a charge to income tax. The 10% notional credit which has applied for many years is going to be abolished, and the rates of tax on the dividends you receive (in excess of the annual allowance) will be 7.5%, 32.5% and 38.1%, depending on whether you are a Basic Rate, Higher Rate or Additional Higher Rate taxpayer.
Income from Rental Property
Many British expatriates rent out their UK properties and some have to file income tax returns to report rental income and expenses. From April 2016, the Wear and Tear allowance will be abolished and replaced with a new form of relief which will capture actual expenses on replacing furnishings.
Allied to this is the surprising decision to change the way in which account is taken of mortgage and loan interest in the rental account. From April 2017 the ability to deduct these costs from rental income will be gradually phased out and replaced with a relief which reduces your tax liability on rental profit by no more than 20% of the amount of the mortgage and loan interest you have paid.
Anyone who has been watching the political debate about tax in the UK in recent years will know that the subject of ‘non-doms’ has rarely been out of the news. In short, this is a status which allows certain classes of UK resident taxpayers to shelter their foreign income, gains and wealth from all forms of tax, provided that certain conditions are met. From 6 April 2017, anybody who has been resident in the UK for more than 15 of the last 20 years will be deemed to be domiciled in the UK for tax purposes.
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