Urgent Alert for South African Expats in the UK: Seize Tax Opportunities Before They’re Gone!

Historically, numerous South African expatriates living in the UK return to their homeland during the festive season to enjoy the summer warmth and reconnect with loved ones. However, this year brings a significant financial issue that demands urgent attention.

The UK is set to overhaul its tax framework by discontinuing the long-standing non-domiciled status and implementing a residency-based taxation system from 6 April 2025.

Read: Persistent emigration and tax misconceptions

This new legislation means that South African expatriates who moved to the UK before 6 April 2022 will soon become liable to UK taxes on their worldwide income and assets, including real estate, stocks, retirement accounts, and even trusts located in South Africa.

It is crucial for them to seek financial counsel and reorganize their South African financial affairs early next year to avoid double taxation and protect their assets.

Understanding the changes

For over two centuries, the UK’s non-domiciled tax system offered considerable advantages to South Africans in the UK.

Previously, expatriates could maintain foreign earnings and assets away from the UK tax net as long as those funds weren’t brought into the country. Nevertheless, the recent policy shift – approved by the new Labour government in November – reflects a global trend towards increased tax transparency and diminished avoidance.

The updated regulations will effectively categorize South African expatriates as UK-resident individuals, significantly increasing their tax obligations.

This is not simply a minor adjustment but a radical transformation in the taxation of foreign income and assets in the UK.

The most immediate effect of the newly established residency system will be increased taxes on international income and gains. Dividends from South African stocks, currently taxed at 20%, could now be subject to UK tax rates as high as 39.35%.

Read: Emigrating to the UK? Beware the tax of SA assets by UK taxman

Moreover, profits from the sale of South African assets could now be taxed at 24%, compared to South Africa’s maximum rate of 18%. Retirement funds and annuities in South Africa could also present significant tax challenges.

Withdrawals might now incur additional UK taxes, even after South African PAYE has been paid, if the Double Tax Agreement (DTA) is not applied correctly.

One of the most significant consequences is the substantial enhancement of UK inheritance tax.

Under current rules, South African non-domiciled expatriates were generally exempt from inheritance tax on assets owned outside the UK. However, under the new regime, UK inheritance tax will now extend to all global wealth – including family homes, investments, and business assets located in South Africa – potentially at rates up to 40%.

Trust Risk

Trusts, historically viewed as a viable strategy for South Africans to protect and manage their wealth, will be significantly affected by the new UK tax regulations.

UK tax residents with non-UK trusts established, even before relocating to the UK, may now be required to pay annual UK taxes on income or capital gains generated within the trust, irrespective of whether distributions are made.

Even more alarming, long-term UK residents will now find their non-UK trust assets subject to UK inheritance tax for the first time.

The previous safeguards that rendered trusts a haven for wealth preservation are now being fundamentally compromised.

While these changes may appear daunting, there is an essential window of opportunity in the coming months to lessen the impact. The UK government has introduced transitional measures that enable strategic financial restructuring. There is a four-year tax holiday on foreign income and capital gains for new expatriates to the UK.

Additionally, for those who have been longer in the UK, the Temporary Repatriation Facility allows expatriates to transfer accumulated foreign income and gains to the UK at a favorable tax rate of only 12% for the upcoming UK tax year.

Key Actions

1. Consult with professionals well-versed in both South African and UK tax laws, along with double tax agreements, to effectively mitigate the impact.
2. Consider promptly withdrawing your South African retirement funds and liquidating your South African assets to capitalize on lower tax rates.
3. Review and possibly restructure existing trust arrangements.

4. Take advantage of the Temporary Repatriation Facility and the four-year tax holiday on foreign income and gains before these benefits expire.

With less than four months remaining before these significant changes take effect, procrastination is not an option. Time is of the essence.

* Michael Kransdorff is the CEO of the Institute for International Tax and Finance.

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