UK Budget – Some implications for income investors and expats.

There has been some interesting announcements made in the 2015 Budget, which will have an impact on individuals who gain income through dividends and rents.  In the last quarter, record dividends were paid out by FTSE 100 companies in the UK. This partly reflects the fact that many UK firms announce dividends in Dollars, and when one factors in the depreciation of the Pound against the Dollar, in Pound Sterling terms the payout was a record.

It does also reflect the strong balance sheets that many big firms continue to have in the UK.  Interestingly, the financial sector has started paying dividends in a big way again, with lloyds TSB paying out their first dividend in years.  Despite this good news, there has been some tax implications which will have an impact on UK residents and expats who receive such income.

A new tax free 5,000 dividend allowance has been announced, but for rates above this, the effective tax rate has been increased by 7.5%, meaning that most of those above the allowance will be taxed more.  With good planning, however, investors can reduce their exposure.  They should make the most of tax shelters such as ISAa (for UK citizens) and offshore financial planning (for expats).

In addition, landlords in the buy-to-let sector will also see some changes from 2017.  At the moment, landlords can put the interest costs on such mortgages on their self-assessment forms, meaning they are getting tax relief on mortgage interest. In the future, this system will be only be restricted to the basic rate of tax.

The changes that have been made, once again shows the benefits of having liquid investments that can easily be sold.  After looking at the specific situation of an individual, it is usually quick and easy for an expat to transfer their funds offshore, if they are an income-investor that wants tax-efficient investments.  In comparison, selling a house can take months, and can ultimately be worthless if a buyer does not make a bid for any number of reasons such as worries about floods or structural problems in the house.