2015 UK Summer Budget – Tax Issues Affecting Migrants

The Summer Budget – the first from the new Government in the UK – has been handed down.

Changes that may affect individuals who have moved from the UK to Australia – and who are moving to the UK from Australia include:

  • An increase in the personal allowance (the amount of income you can receive before you pay income tax) of £11,000 in tax year 2016/17 (currently £10,600).
  • An increase in the basic rate tax limit to £32,000 from the start of tax year 2016/17. This means that the higher rate tax (40%) threshold will increase to £43,000.
  • For those with let furnished property in the UK, the withdrawal of the 10% wear and tear allowance from April 2016, to be replaced by a tax allowance based on the cost of replacing furnishings.
  • A restriction of tax relief for finance costs on residential properties to the basic rate of income tax, to be introduced gradually from the 6th of April, 2017. Note: Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans.

    Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their net property profit. They will instead receive a basic rate tax reduction from their income tax liability for their finance costs. This change will be phased in over 4 years from the 6th of April, 2017.

  • Increasing the nil rate band for Inheritance Tax purposes in respect of a residence that is passed to a direct descendent upon death.

    This additional amount will be:

    £100,000 in 2017/18
    £125,000 in 2018/19
    £150,000 in 2019/20
    £175,000 in 2020/21

  • Ending permanent non-UK domiciled status, from April 2017. From that date, anyone who has been resident in the UK for 15 of the past 20 years will be considered UK-domiciled for income tax and capital gains tax purposes.
  • Changing the tax treatment of dividend income received by individuals. Dividends from UK companies carry a notional 10% credit for income tax purposes. A basic rate taxpayer does not suffer any further income tax. A higher rate taxpayer pays income tax at 32.5%, and an additional rate taxpayer pays income tax at 37.5% on the gross dividend. The 10% credit is then deducted from the tax liability, giving rise to effective tax rates of 25% and 30.56%.

    The notional tax credit on dividends will be abolished from April 2016 and a new Dividend Tax Allowance (DTA) of £5,000 a year for individuals will be introduced.

    The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

    The DTA will be additional to the Personal Savings Allowance of £1,000 and the Personal Allowance of £11,000, giving total tax free income of £17,000 for 2016/17.

    It is though expected that this change to the taxation of dividend income will only affect those who are tax resident in the UK, as non-UK resident individuals are usually not subject to additional UK income tax on UK dividend income.

There are some significant changes in the above, which are likely to impact individuals who are in receipt of rental income from property in the UK, and dividend income from private companies in the UK.

GM Tax is a boutique tax firm assisting individuals and businesses that are moving between the UK and Australia. We can advise on how the above changes affect you; those who might be affected should feel able to contact us by completing the enquiry form on this page, or by telephone through your nearest GM Tax office.

Our fees for advice are agreed in advance and are fixed in amount.