UK Budget 2024 for Brits living in Spain

The UK’s 2024 budget brings changes that will directly affect British expats living in Spain. From tax allowances and pensions to property and investments, these updates could have significant financial implications. It’s crucial for expats to stay informed and plan accordingly to navigate the complexities of both UK and Spanish tax systems. This article explores the budget’s key changes and offers practical advice to help expats protect their wealth and plan for the future.

1. Income Tax Freeze: What It Means for Expats

The UK government has frozen income tax thresholds until 2028, with the personal allowance remaining at £12,570 and the higher-rate threshold at £50,270. While these thresholds might appear unchanged, the freeze effectively increases the tax burden as inflation pushes income higher.

Key Impacts for Expats:
– Rental Income and UK Pensions: Expats earning UK-based income, such as rental income or pensions, may find a larger portion of their earnings subject to higher rates of tax.
– Inflation Impact: Over time, static thresholds erode the value of income, leaving expats with less disposable income.

Planning Opportunities:
– Make use of any available allowances to mitigate tax liability, such as the marriage allowance or gift exemptions.
– Review your UK income streams with a Chorus adviser to assess potential tax efficiency under the UK-Spain Double Taxation Treaty, which prevents double taxation on the same income.

2. Pension Updates: A Secure Future, But Mind the Risks

The 2024 budget confirms the State Pension Triple Lock will continue, ensuring annual pension increases tied to the highest of inflation, earnings growth, or 2.5%. While this is good news for expats relying on their UK state pensions, private pensions demand a closer look.

State Pension for Expats:
– British expats with a UK state pension benefit from inflation-proof increases, maintaining their purchasing power in Spain.
– Ensure your pension payments comply with Spanish tax laws, which differ from UK taxation.

Private Pensions:
– The abolition of the Lifetime Allowance (LTA) means there’s no longer a cap on the growth of private pension savings. While this allows for unlimited growth, expats must carefully consider how pension withdrawals will be taxed in Spain.

A Warning on Advice:
Post-Brexit, financial advice for expats has become more complex. It’s vital to work with an adviser regulated within the EU, such as those at Chorus Financial, to ensure compliance and access to the right pension solutions. UK-based advisers are no longer authorized to oversee investments or pensions for residents in Spain, which can expose expats to risks.

3. Property and Capital Gains Tax: Impacts of the Freeze

The UK’s Capital Gains Tax (CGT) allowances remain frozen at £6,000 for individuals, set to reduce further to £3,000 in 2025. This change makes it more costly for expats to sell UK property or investments.

Key Considerations:
– Selling property or assets in the UK may result in higher CGT bills due to reduced exemptions.
– Expats must comply with reporting deadlines to avoid penalties, ensuring they declare any capital gains within the required time frame.

Cross-Border Planning:
– Consider how the UK and Spanish tax systems interact under the double taxation treaty when disposing of assets. Spanish CGT rates may be more favorable depending on the circumstances.
– Work with a Chorus adviser to explore asset restructuring that reduces exposure to CGT in both countries.

4. Inheritance Tax: Protecting Your Legacy

The freeze on the UK’s Inheritance Tax (IHT) thresholds continues, with the nil-rate band at £325,000 and the residence nil-rate band at £175,000. With property values rising, more estates are becoming liable for IHT, which can significantly affect expats.

Challenges for Expats:
– Estates with UK-based assets, such as property, are subject to UK IHT, regardless of residency.
– Spanish succession taxes also apply, creating a risk of dual taxation.

Planning Opportunities:
– Restructure assets to minimize IHT exposure, potentially removing assets from the UK tax net.
– Develop an estate plan that considers Spanish succession tax laws and thresholds.

Chorus Financial Tip:
Effective estate planning ensures your wealth is protected and transferred efficiently to your loved ones. Contact us for personalized advice on IHT and succession planning.

5. Investments: Tax Efficiency and Compliance

Investment portfolios are another area of focus for British expats in Spain. The budget does not introduce major changes to savings or ISAs, but it’s essential for expats to ensure their investments align with their residency status.

Considerations for Expats:

– Investment income generated in the UK remains taxable under UK law but must also be reported in Spain. The tax-free status of ISAs, for example, is not recognised in Spain, making them less efficient for expats.
– Access to suitable investment solutions can be limited if managed by UK-based advisers, who are no longer authorised to provide advice to Spanish residents. This can result in inefficiencies or even legal risks.
– It may be prudent to consider moving assets like savings, investments or ISAs outside the UK if you wish to avoid these falling under the scope of UK Inheritance Tax in the future. This can also help them become more tax efficient for Spanish residents, vs solutions designed for UK residents. 

Smart Investment Strategies:
– Work with a Chorus adviser in Spain to ensure your portfolio is optimized for both tax efficiency and compliance.
– Explore tax-efficient investment products that align with Spanish regulations.

Chorus Financial Insight:
Our advisers specialise in optimising investment portfolios for expats, ensuring compliance and maximizing returns. Contact us for a portfolio review.

You can read the full 2024 Autumn budget at https://www.gov.uk/government/publications/autumn-budget-2024/autumn-budget-2024-html. 

The BBC have also published a basic overview of changes at https://www.bbc.com/news/articles/cdxl1zd07l1o. 

Conclusion: Plan Ahead for Stability and Success

The 2024 UK budget introduces changes that underscore the importance of proactive financial planning for British expats in Spain. From navigating tax freezes to managing pensions and investments, the right strategy can help you protect your wealth and ensure compliance with both UK and Spanish laws.

At Chorus Financial, we understand the unique challenges faced by British expats. Our team of regulated, experienced advisers specializes in providing tailored advice to help you navigate these complexities.

Contact us today to arrange a free consultation and take the first step toward securing your financial future in Spain.