How to Labour proof your finances

No matter where you stand on the political spectrum, it seems there may be difficult times ahead regarding the UK’s finances.

With the upcoming budget on 30th October, tax increases seem all but certain.

The dilemma for the government is that, with Labour’s pledge not to raise income tax, national insurance, VAT or corporation tax, how will they look to ‘plug the hole’?The dilemma for the government is that, with Labour’s pledge not to raise income tax, national insurance, VAT or corporation tax, how will they look to ‘plug the hole’?

Here are some key areas to consider, the implications of which will be determined by your tax residency status, UK or Portugal.

Capital Gains Tax (CGT)
Currently, non-property gains are taxed at 10% for basic-rate taxpayers and 20% for higher/additional rate taxpayers, and property gains are taxed at 18% or 28%. One potential change could see CGT rates aligned with UK income tax rates i.e. 20%, 40% or 45%.

Whilst this will not have an impact to gains made by expatriates on non-property related investments, as the gain is only taxable in the country of resident (28% in Portugal), it would impact gains made on property held by non-UK residents.
UK property is always primarily taxable in the UK, irrespective of where the owner is resident. For Portuguese tax resident selling UK property, tax is also due in Portugal on the gain with a credit for any tax paid in the UK (unless a Non-Habitual Resident, where the gain is taxed at 0% in Portugal).

Pension Schemes
Changes to pensions would impact both UK and Portuguese tax residents. Currently, pension schemes are exempt from inheritance tax (IHT), but this benefit could be reduced or eliminated. Additionally, there may be changes to tax relief on pension contributions, so now could be a good time to maximise contributions and unused allowances while full relief is still available.

Keir Starmer has confirmed that there are no plans to reintroduce the lifetime allowance (LTA), but he has pledged a pension review.

This could see the tax-free Lump Sum Allowance (LSA) reduced or removed, so those needing this cash could benefit from withdrawing it sooner rather than later.

There may also be a reduction in the tax relief on pension contributions for high earners, reducing the relief from 45% to 20%/25%.

Whilst currently, pensions are outside the scope of UK inheritance tax, there has also been talk of removing this benefit. So those with large pension pots should keep an eye on these changes.

Early planning is crucial with IHT, such as starting the seven-year gifting period and taking advantage of the annual available reliefs.

For those looking to adopt a domicile of choice in Portugal, it would be beneficial to reduce your UK-based assets, as they remain subject to UK IHT, even if you are domiciled abroad.

Other changes
Possible further changes include reducing the generosity of agricultural and business property reliefs, and “wealth tax” targeting high-net-worth individuals e.g. through increased taxes on property holding, shares, dividends and luxury goods.

Final word
It is expected that any announced changes will come into effect from 6th April 2025, so whilst this may seem like a long planning window, planning early will be very important to ensure you take advantage of any remining opportunities and restructure in time.

With over 35 years’ experience, Debrah Broadfield and Mark Quinn are Tax Advisers & Chartered Financial Planners specialising in cross-border advice for expatriates. Contact us at: +351 289 355 316 or portugal@spectrum-ifa.com