Essential Insights for British Expats

Chancellor Rachel Reeves delivered her latest budget this week, introducing key changes that may affect British expats living overseas, particularly those with UK assets, pensions, property interests, or family connections back home. We’ve analysed the key measures through the lens of what matters most to our expat clients.

Why This Budget Matters to You

Even living thousands of miles away, UK policy changes can have real implications for your financial life. Whether you’re planning an eventual return to the UK, supporting family back home, managing UK property, or maintaining UK pension arrangements, understanding these changes is essential for effective long-term planning.

Pension Changes: A Critical Update for Expats

From 2029, the government will cap salary sacrifice pension contributions at £2,000, with amounts above this threshold taxed as regular employee contributions. This measure is forecast to raise £4.7 billion.

Why expats should pay attention: If you maintain UK employment or have ongoing UK pension arrangements, this may change the landscape for pension accumulation. The traditional tax advantages of salary sacrifice schemes, particularly beneficial for higher earners, will be significantly reduced.

UK Property: The Mansion Tax Arrives

The budget introduces a council tax surcharge on high-value UK properties:

Additionally, tax rates on property income and savings income will increase by two percentage points from April 2027. The new rates will be 22%, 42%, and 47% for basic, higher, and additional rate taxpayers, respectively.

Expat implications: Many British expats own property in the UK, whether as a future home, rental investment, or family residence. The new mansion tax will affect those with high-value London or South East properties, whilst the property income tax increase impacts anyone receiving UK rental income.

The real question is whether your UK property holdings align with your life goals. Is the property genuinely for eventual personal use, or has it become an underperforming asset maintained more from sentiment than strategy? With increased taxation and the complexities of managing property remotely, this may be an opportune moment to reassess.

ISA Changes: Reduced Cash Limits

From April 2027, the annual cash ISA limit for UK taxpayers drops from £20,000 to £12,000, though the stocks and shares ISA limit remains at £20,000. Those over 65 are exempt from the cash ISA reduction.

Expat relevance: Many British expats maintain UK ISA wrappers, particularly if they were UK residents when these were established. However, when moving abroad, you can’t put money into your UK ISA, but you can keep it open for tax relief, transfer it, and pay into it again upon return.

The reduced cash allowance reinforces what the evidence already tells us: cash holdings above emergency reserves typically underperform inflation-adjusted returns over time.

Income Tax Thresholds: The Stealth Tax Continues

The three-year extension of the income tax threshold freeze represents the single biggest revenue-raising measure in the budget. As wages rise with inflation, more people are dragged into higher tax bands without any change to headline rates.

Expat angle: This primarily affects those with UK income sources. However, if you’re planning an eventual return to the UK, understanding the future tax landscape is crucial for long-term financial planning. Real take-home pay will continue to be squeezed by fiscal drag.

Planning implication: For those considering whether to return to the UK or remain abroad long-term, the persistent erosion of take-home pay through frozen thresholds is another data point in that life decision. It’s not the determining factor, but it’s part of the overall picture.

A Fairer Tax System for Investment Income

The government will raise tax rates on dividends, property income and savings by two percentage points, a change Rachel Reeves says is needed to create a fairer system. These increases will apply to UK-sourced income, which means British expats receiving rental income, dividends from UK companies or taxable UK savings will also be affected.

From next April, dividend tax will rise to 10.75 percent at the basic rate and 35.75 percent at the higher rate. The government notes that ninety percent of UK taxpayers will still pay no tax on their savings.

Capital Gains Tax: Business Owner Impact

Relief on shares sold by business owners has been cut by 50%, whilst employee ownership trust CGT relief drops from 100% to 50%.

Who this affects: British entrepreneurs who maintain UK business interests, or those considering establishing UK operations.

Strategic consideration: If you’re a business owner contemplating a sale or exit, the timing of these decisions now carries additional weight.

Economic Outlook: What the Forecasts Tell Us

The Office for Budget Responsibility predicts UK growth of 1.5% for 2025, but has downgraded expectations for subsequent years. Inflation is forecast at 3.5% this year, above the Bank of England’s 2% target, before falling to 2.5% in 2026.

Evidence-based perspective: Economic forecasts are notoriously unreliable, and we don’t base investment decisions on attempts to predict macroeconomic outcomes. However, understanding the UK’s economic trajectory matters for life-planning decisions, particularly if you’re weighing options about where to live, work, or eventually retire.

The continued economic uncertainty and persistent inflation in the UK contrasts with Hong Kong’s position as a stable financial hub with strong connectivity to Asian growth markets. For many of our clients, this reinforces the value of maintaining an internationally diversified approach rather than concentrating assets in any single geography.

Your Next Steps

At Pyrmont Wealth, we believe financial planning should start with your life goals, not with tax optimisation or reacting to policy changes. However, these budget measures do create some important planning considerations.

The beauty of living as an expat is the flexibility to structure your financial life in ways that serve your goals, rather than being constrained by a single tax jurisdiction. This budget is simply another data point in ensuring your approach remains optimal for your circumstances.

If you have UK assets, pensions, or property, and would like to discuss how these changes specifically affect your situation, or review whether your current financial structure aligns with your life goals, we’re here to help.

Get in touch.