Our recent blog, It’s Bad news for British Expats, obviously sent the UAE’s English, Welsh, Northern Irish and Scottish expat communities into a spin judging by the number of hits the story received. So here, Andrew Prince, a financial planner for Acuma Independent Financial Advice offers his take on the recent UK budget:
Lamborghini and Ferrari dealers were probably salivating when George Osborne announced in the budget last week that you were no longer obliged to purchase an annuity (income for life) at retirement. The media certainly did a wonderful job of promoting images of little old ladies blowing their life savings on a shiny new sports car.
Now call me a cynic, but having prudently saved for the past 40 years to provide themselves with an income for the rest of their life; how many arthritic old ladies with a touch of lumbago are likely to recklessly blow it all on a sports car?
As with any financial planning, the devil is in the detail, so here are some observations:
· Compulsory Annuity Purchase was abolished in 2011. Hardly breaking news.
· Once the tax free cash (typically 25 per cent) has been taken, any excess is taxed at your highest marginal rate – potentially 45 per cent. So almost half the balance it lost to tax; hardly sensible financial planning wouldn’t you agree? Remember, it’s your pension that is located in the UK and subject to income tax, irrespective of whether you are sunning yourself in the UAE.
· Depending upon your country of residence in retirement, there could also be punitive local taxes to pay. Thailand for example could hit you for an additional 35 per cent.
· Discussions are underway to remove the personal allowance from all non-UK residents. This would mean 100 per cent of your income is subject to taxation; whereas currently, only income above £10,000 is liable to tax. Do you have rental property or an old pension in the UK? Then you need advice now.
· It’s my opinion that the 55 per cent tax on death will be replaced with the rates applicable to income tax ie currently a maximum of 45 per cent.
· In broad terms, final salary schemes are £200 billion in deficit; however for those with Civil Service pension schemes such as Teachers and NHS workers; the situation is far worse with a deficit estimated to be in excess of £1 Trillion. That’s a billion with more noughts on the end.
· Triviality sums will be increased from £18,000 to £30,000; however this taxable once the 25 per cent “tax free” element has been deducted.
Now what colour would you like the Aston in Madam?