Last month’s column concluded my series on financial fitness, which I hope gave an insight into the various aspects of financial planning, and the different areas that need to be considered. This month I would like to summarise the relevant points from the recent UK Budget and how they may affect expatriates here in the Middle East.

The main area of focus from a financial planning point of view related to pensions. Arguably the biggest but least understood change relates to what is referred to as the Lifetime Allowance. This is the total amount that your pension pot can be worth before a tax charge is levied on the excess. This limit has been reduced to £1.25 million (Dh7.7 million) — now this may seem like a huge number, but this is a fixed amount and is not linked to inflation. It has been calculated that a 30 year old with a pension pot of £21,000 could be caught out by these rules. Therefore it is vital that you review your UK pension and look at what options you have.

Other headlines include the increase in the amount of annual income that can be taken from a pension — but again this is not quite as it seems, as income rates are linked to inflation, gilt yields and interest rates; all of which are at historic lows, so the income levels are simply being brought back inline with previous limits, and of course this extra income is potentially taxable.

Lump sum

The point that received the most attention is the news that if you wish you will be able to take your whole pension pot as a lump sum — but with caveats. Above and beyond the pension commencement lump sum — formally known as tax free cash of 25 per cent, the remainder will be taxed at your highest marginal rate of income tax, up to 45 per cent. I would suggest a strong reason not to exercise this option. And for expatriates there could be further taxes in their local countries dependent on local rules. Small pension pots (up to £10,000) can now be taken as a lump sum but again will be subject to income tax.

As you may have realised, while this new legislation is being dressed up as a relaxing of the pension rules, it is also a means to increase the amount of tax revenue that can be generated from pensions, which is something the UK government is desperately needs to do.

There are other tax related rules that will affect even more expatriates that have an income source in the UK, for example rental property. Previously regardless of your residence you were entitled to an allowance before income tax was potentially due, but this has now been removed for expats, so income tax can be payable on all income from zero upwards.

Capital Gains Tax

The Budget also extended the application of the annual tax on residential properties held by corporate vehicles, and the related Capital Gains Tax (CGT) charge, so that they will apply from April 2015 to properties worth over £1 million and from April 2016 to properties this will decrease further to include properties worth over £500,000. In addition, the 15 per cent Stamp Duty Land Tax rate for purchases by corporate vehicles will apply to acquisitions of properties worth more than £500,000 with immediate effect.

These changes are seen as fairly benign in the UK, as they are not seen to directly affect the resident population, but they could have an effect on non-residents view of the UK, although given that most of these rules are equalising the position between resident and non-resident, it should not be dramatic.

As always, the devil is in the detail, and if you have any queries you should seek professional assistance.

James Thomas is the regional head of Acuma — Independent Advice. Opinion expressed are his own and do not reflect that of Gulf News.