How the UK budget affects people overseas

What to look out for – from higher mortgage rates and flight costs to capital gains tax changes

Britain's Chancellor of the Exchequer Rishi Sunak at the Bury Market in Lancashire after delivering his budget speech. AFP

British Chancellor of the Exchequer Rishi Sunak's autumn budget boosted departmental spending by £150 billion as he committed to building stronger public services, “levelling up” the economy and driving business growth.

But his budget was criticised for leaving the overall tax burden on households at its highest level in 70 years, while the decision to hold or cut taxes on fuel and flying only days before the UK hosts climate change talks at the Cop26 environment summit in Glasgow also drew ire.

So how does the budget affect Britons living overseas? Here are six changes to be aware of:

Inflation is set to rise so expect higher mortgages rates

While the UK economy is likely to grow at a higher-than-expected 6.5 per cent this year, inflation is also likely to rise, hitting an average of 4 per cent in 2022.

Mr Sunak blamed the cost-of-living rise on the reopening of economies after the pandemic, which has caused supply chain challenges around the globe.

An increase in inflation also signals an interest rate rise is imminent, which will have a direct impact on mortgage rates.

Paul Dales, chief UK economist at Capital Economics, said there is a “high chance” the Bank of England will raise interest rates to 0.25 per cent at next week’s meeting, from 0.10 per cent, as it strives to combat surging inflation.

“It may then raise rates to 0.50 per cent in February, if not in December,” he said.

It means overseas buyers of properties in the UK may end up with a higher mortgage rate than they had hoped.

Banks and building societies are scrambling to get ahead of the anticipated interest rate rise next week, with four of Britain’s biggest lenders raising mortgage rates straight after Mr Sunak's budget in a move that adds as much as £400 ($549) to repayments.

Borrowers on variable rate mortgages will be hit the hardest while those on fixed-rate mortgages will be protected until their term ends.

However, banks have already begun to raise the cost of taking on a new fixed deal for people buying a house or remortgaging.

Experts say those wanting to keep costs down over the long term should overpay on their mortgages now to avoid a bigger bill when their fixed rate expires.

Booking a long-haul flight from the UK is more expensive

Mr Sunak's reduced air passenger duty (APD) means flights within Britain will be cheaper. But the same will not apply to long-haul flights overseas.

APD is levy paid by airlines but ultimately funded by passengers through the cost of their tickets. The duty applied to domestic flights has now been slashed to £6.50 in a boost to nine million domestic passengers.

To offset any increased carbon emissions, the Treasury said it would increase fuel duty for long-haul flights.

Those flying up to 2,000 miles (3,200 kilometres) in economy class will pay £13 per flight, rising to £87 for those traveling 2,000 to 5,000 miles.

"However, a new ultra-long-haul band will be introduced for destinations with capitals located more than 5,500 miles from London, with an economy rate of £91,” said Simon Cahill, a chartered financial planner at Octopus Wealth.

This makes any long-distance flights booked out of the UK more expensive for those living overseas.

The Treasury said the effect of the changes to the tax would be carbon neutral when the cut to levies for domestic flights is balanced against the increase in ones for long-haul journeys.

You have longer to file your capital gains tax return

A feared shake-up to capital gains tax did not happen, but what the chancellor did do is extend the amount of time sellers have to file a return after the sale of a residential property.

CGT on property sales ranges from 18 per cent to 28 per cent depending on the rate band, with sellers required to inform HM Revenue & Customs about the sale and pay any tax on the capital gain within a certain time period.

Under the revised rules, UK residents and overseas buyers now have 60 days to comply with CGT rules after completion, doubling the existing 30-day deadline. The new ruling is effective immediately.

The age you can access your pension pot will go up to 57

The minimum age savers can access their pension pots without incurring a tax charge will be increased to 57 from 55.

Mr Cahill said while this change was unveiled earlier this year, ”it is now confirmed and will take effect from April 2028”.

The government will now legislate for the increase in the normal minimum pension age in the Finance Bill.

This means those planning to head home to the UK to retire may have to delay their return if they want to draw on their pension.

The measure supports the government's attempt to encourage Britons to work longer, leading to indirect benefits to the economy through increased labour market participation, while also helping to make sure pension savings provide for later life. The change will coincide with the increase to the state pension age from age 65 to age 67.

Dividend tax will go up

A previously announced increase in dividend tax – which will rise by 1.25 per cent from April 2022 – was confirmed at the budget.

The raid on share dividends will cost investors more than £3 billion over the next five years, hitting about 2.5 million savers by an average of £355, according to budget documents.

The increase will mean basic rate taxpayers pay dividend tax at 8.75 per cent and higher rate taxpayers at 33.75 per cent on dividend income.

Savers who receive dividend payments from their stock-market investments are taxed on income of more than £2,000.

For overseas residents, this will apply only if some of your investments are still onshore in the UK. If they are, analysts say it might be wise to relocate them into offshore vehicles to reduce the tax burden.

Moving back to live in the UK will be more expensive

If you are planning a move to the UK, you will find life expensive.

While there is already plenty of evidence showing prices going up in the shops and on bills, the cost of living is expected to rise to an average of 4 per cent next year.

Although the freeze on fuel duty has been extended for another year, drivers are already struggling with much higher prices at the pump.

No measures in Mr Sunak’s budget to assist householders with rising domestic gas and electricity bills added another blow to already squeezed households.

While income tax was left untouched, with the personal allowance remaining at £12,570, two massive tax decisions had already been made that will affect your money in the future.

In the previous budget, Mr Sunak froze the thresholds at which income tax is paid at April 2021 levels for five years. That means any pay rises will push more people into higher tax bands.

Then, in September, the government said employees, employers and the self-employed would all pay £1.25 more in the pound for National Insurance from April 2022 to help fund social care.