Recent political changes in the UK mean it's time for action for Kiwis with assets in the UK, writes Nick Stewart.
Nick Stewart is a financial adviser and CEO at Stewart Group, a Hawke’s Bay-based financial planning and advisory firm.
OPINION
It’s a common goal for any young Kiwi – the great OE.
Many New Zealanders have lived and worked in the UK. Often for sizeable stints at a time, and often amassing assets along the way like pensions, savings accounts, investment portfolios even real estate. When they feel the call of home, they frequently leave these assets behind.
Whether they have the intention of returning to the UK in future or are simply content to let sleeping dogs lie until they are ready (or forced) to act, it’s not uncommon for Kiwi expats to leave more than just a trail of Euro summers behind when coming back to the Motherland.
Recent political changes in the UK mean the time for action may be arriving sooner than anticipated for anyone living in NZ with assets in the UK. Here’s why:
Under the UK’s Labour Government, significant tax hikes are being predicted at the next Budget announcement (October 30). There has been rife speculation about the impact of capital gains tax (CGT), and potential changes to pension regulations.
CGT can arise when there is an increase in the value of an asset between when it was bought and when it was sold. As you can imagine, this encompasses a lot of assets… and may challenge the profitability of things like property and investments.
For Property Owners:
“You can always rent it” – except that might not be so appealing anymore. Expats owning rental properties in the UK could face substantial impacts from the proposed tax increases and new regulations.
The Labour Government has indicated potential rises in taxes on rental income and capital gains from property sales, coupled with stricter regulations aimed at improving housing affordability and tenant protections.
So, if things go as predicted… your UK property could have bigger operational costs, reduced rental yields, and potentially be more expensive to sell if you decide it’s not worth keeping (tax-wise).
For Investors:
CGT can strike again for those with UK equities. Simply put, even selling on the high won’t make as much profit as it used to after tax – so while you could still have a tidy portfolio, it’s worth seriously looking into whether this is realistic long-term if you have no foreseeable plans of returning to the UK.
Additionally, market volatility driven by political and economic uncertainties (while it would be short term – as we know, markets act independently of politics beyond momentary knee-jerk investor behaviour) could impact performance; or at least impact investor confidence, making UK assets much less attractive.
For Pensioners:
UK private pension – which functions similarly to Australian Superannuation or our own KiwiSaver, as a somewhat mandatory savings account for retirement – is also under the magnifying glass.
The Labour Government is considering reducing the lump sum that pensioners can withdraw. Currently, UK pensioners can access up to 25% of this pension pot tax-free. There’s pressure to change this threshold to £100,000 rather than a percentage.
For expat pensioners, this reduction could mean less of their pension savings are accessible, potentially affecting retirement plans and reducing financial flexibility.
So, for those who have spent years abroad stacking up their pension – keep an eye on that, to make sure your retirement income isn’t unduly impacted before you can bring your pension home.
These are all subject to the risks outlined above if the tax changes go ahead.
For Your UK Savings Account or Individual Saving Accounts (ISA)
UK savings accounts, already struggling with low interest rates, may offer even less attractive returns under the new tax regime. Additionally, currency fluctuations pose a risk when converting UK assets back to New Zealand dollars.
Returning Kiwis: Beware of Tax on Offshore Assets
New Zealand tax residents are taxed on their worldwide income, even on assets held in tax-sheltered regimes abroad. For returning Kiwis, there is a helpful concession: a four-year tax exemption on foreign-sourced income.
However, after this grace period and depending on the taxpayer’s circumstances, these assets are taxed under New Zealand’s foreign investment fund regime or the scheduled method which taxes a portion of the lump sum payment with incremental increases each year.
The longer you keep an asset offshore, the more your tax obligation can grow exponentially. For taxpayers in the 39% marginal tax bracket, the dollars start to add up!
Many returning expats leave their offshore assets untouched, hoping that the tax regime will change or assuming their holdings are too insignificant to attract attention from the Taxman. This is not likely to end well. Ignoring looming tax implications is like setting up a fiscal time bomb, waiting to explode …
Estate Planning: The Importance of Asset Custody
Holding assets in local custody is best practice when the inevitable happens - whether it’s death or incapacitation. Directly held offshore assets can be difficult to repatriate, often resulting in significant costs and delays for the estate.
Proper estate planning, including holding assets through custodial arrangements, simplifies this process, ensuring smoother transitions for loved ones. Without proactive planning these situations can turn into a logistical nightmare, leaving families facing unnecessary challenges during already difficult times.
If you hold any UK assets – property, pensions, portfolios of any kind – you need to ensure that your strategy and your financial goals are still going to be in alignment. The time for inertia is over; now, you need to take control of your financial future before the fruits of your labour are impacted by new UK tax and pension rules.
But – taking action doesn’t mean you should panic and immediately withdraw everything, either. The best course of action is to consult with a trusted financial adviser, who can strategically guide you through any hidden obstacles involved and make any transitions as smooth as possible.
Engaging a local financial adviser can help you make informed decisions around asset management, stay focused on your long-term goals, and safeguard your wealth in a dynamic global landscape.
After all, no one likes to spread their wings more than the little country that identifies with a flightless bird. It’s important to make sure that at the end of your travels, should you land back in little old God’s Own, you are able to do so without uncertainties around your financial wellbeing.
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