2006 UK Budget - A Summary for Expatriates
(23/3/2006)
Yesterday, saw Gordon Brown’s 10th (and what many predict will be his last as Chancellor) UK budget. As ever, it pleased some and upset many more – but what about its’ implication on expatriates?
Well, to be honest, it was dull – even by taxation and financial services standards! But there are a few areas that British expatriates (or those looking to move to the UK) should be aware of.
No Change in Life Assurance tax benefits
The Chancellor did not announce any changes to the tax benefits attached to Section 739 ‘friendly’ life assurance policies such as offshore investment bonds.
Such policies have several tax benefits for expatriates looking to return to the UK including discounted investment costs, ongoing tax-efficiency (which offshore bank accounts no longer offer) and the facility to take an income of up to 5% of the bonds initial value into the UK completely free of income tax. This is on top of other tax allowances and benefits.
These benefits are safe for one more year at least but we cannot see them surviving for much longer so our advice is to get your bond set up sooner rather than later.
For more information on Section 739 policies, just click the ‘contact us’ button below, type 739 in the subject box and submit with your preferred contact details.
Stamp Duty Land Tax (SDLT) threshold raised to £125,000 from £120,000
For those looking to purchase property in the UK over the next 12 months, there has been a miniscule increase in the maximum purchase price before you have to pay stamp duty.
It is expected that the increase in the threshold will cost the Government £40 million over the next year. As the rate of tax is 1%, the maximum tax that can be levied within that band is £1,250. So the Government`s own figures suggest only 32,000 transactions will benefit from this change. The total number of property transactions in England and Wales and Northern Ireland was 1.7 million in 2004/05. There was no help for those buying property worth over £125, 000 and has not removed the unfairness of the slab system, where a property just over the threshold pays tax on the whole amount.
In 1997 when Gordon Brown became Chancellor, 51% of property transactions were completed under the Stamp Duty starting threshold. This figure fell to just 28% 2004/05 and to show just how miniscule this increase is, house prices have gone up 250% during this period.
No reform of Inheritance Tax
The long desired reform of the UK inheritance tax (IHT) system did not materialise either. By failing to reform IHT, the Chancellor has failed to deliver for a large number of people. A recent report by Grant Thornton into IHT found that by 2009, 3.6 million estates will be over the threshold.
Whilst the Chancellor may be more concerned with his own future inheritance at number 10, research has shown IHT is a growing problem for millions of people with modest estates and reform is needed. Since Labour came into power house prices have gone up 250%, with the threshold increasing by just 33% in the same time. The resentment it creates is out of proportion with how much revenue it actually brings the Exchequer.
Likewise, there was no change to the law that states that, whilst there is no IHT liability between to British spouses, a couple where one partner is British and the other partner is not UK domiciled are liable to IHT when one spouse dies and leaves their estate to their partner.
For more information on inheritance tax planning, just click the ‘contact us’ button below, type IHT in the subject box and submit with your preferred contact details.
Real Estate Investment Trusts (REITs)
The Budget also gave long-awaited details of the charges that will be levied on property companies if they want to become Real Estate Investment Trusts (REITs), which allow individuals to invest in the property market without the risk of direct ownership.
Property firms will be charged 2% of the gross market value of their investment properties if they want to convert into a REIT.
The government said that this should allow REITs to be launched from 1 January next year without any loss of government revenue.
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