UK Budget for expats and overseas investors: this image shows a picture-perfect London street of colourful terraced houses

The UK Budget for expats and overseas investors

The Autumn Budget 2025 brings in several changes that may affect expats and others who live overseas but have UK property or investments. This article provides the relevant points in a nutshell. For a more general recap of the measures unveiled by Chancellor of the Exchequer Rachel Reeves on 26 November, please read Autumn Budget 2025: core facts for investors. The earlier article is particularly relevant to overseas residents who have UK employment income.

The main changes affecting expats and other non-UK residents, covered below, are:

1. The new ‘mansion tax’ on property worth £2 million plus

2. Higher taxes on income from UK property, investments and savings

3. A 4.8% increase in the State Pension

4. Tightening of the rules around building up entitlement to a UK state pension

5. No notable changes around Inheritance Tax, but due to recent and upcoming changes to the rules in this area, it is important to keep matters under review

‘Mansion tax’ for UK property owners

From April 2028, there will be a new annual surcharge on UK residential properties valued at £2 million or more.
The surcharge is tiered, with owners in the lowest band paying £2,500 per year, and those with properties over £5 million paying £7,500.
While council tax is paid by occupants, the new surcharge will be levied on property owners. It will be on top of existing UK council tax.

Higher tax on UK property income

Tax rates on income from property will rise by 2%. From 6 April 2027, the rate will be: 22% (basic rate taxpayers), 42% (higher rate taxpayers), and 47% (additional rate taxpayers).
For landlords operating under the UK non-resident landlord regime, this means higher withholding taxes or UK tax bills on rental profits or distributions from UK funds.

Other UK investments

Where available to overseas residents, UK stocks and shares ISAs or other tax efficient vehicles remain an efficient way of holding assets. Other income from investments may be subject to higher rates.
In April 2026, the basic rate on dividends will rise to 10.75% from 8.75%, the higher rate to 35.75% from 33.75%, and the additional rate will remain at 39.35%.
Savings income tax will rise by 2% from April 2027, to 22% (basic rate), 42% (higher rate) and 47% (additional rate).

Pensions

Non-UK residents entitled to a UK state pension will benefit from a rise of 4.8% from April. This means the annual full state pension will increase from £11,973 to £12,547, while the old state pension, paid to those who reached state pension age before 6 April 2016, will rise from £9,175 to £9,616 a year.
However, new rules will restrict expats from topping up their entitlement to a UK state pension through National Insurance contributions. From 6 April 2026, it will no longer be possible to top up a UK pension using Class 2 National Insurance Contributions at just £182 per year. From April, the only option is to pay Class 3 National Insurance contributions at £910 per year.
Where contributions are not up to date, it may be beneficial to backdate payments at the current rates before April 2026.
Non-UK citizens can still qualify for a UK pension but must have either lived in the UK for 10 years or have a 10-year record of National Insurance contributions. This has increased from three years. Like UK expats, they can boost their state pension by making Class 3 contributions.

Inheritance Tax considerations

While nothing notable was announced this year, significant changes were revealed in the Autumn Budget 2024.

From April 2027, unused pension funds will be subject to Inheritance Tax. There will also be changes to Agricultural and Business Property relief from April 2026.
There were also major changes for expats and non-UK residents in April 2025 when the new residence-based regime (FIG) came into effect. Under new rules, exposure to UK Inheritance Tax on non-UK assets depends on where you live, rather than your ‘domicile’. Expats remain within the scope of Inheritance Tax for between three and 10 years after leaving the UK. Their status is determined by the Statutory Residence Test.
UK assets remain within the Inheritance Tax net, which may be applied to estates above £325,000 for an individual.
Expats and non-UK citizens should be aware of where they stand under the new ‘Long Term Residents’ rules. And all those with UK assets, particularly private pensions or businesses, should consider their affairs from an Inheritance Tax perspective. Lifetime gifts or trusts could be a way of achieving the optimum outcome in terms of passing on assets to the next generation.

Case studies for overseas residents with UK property and investments

Case study 1

British expat working abroad with UK property and investments

Age 55, British national living and working overseas for more than 10 years
Owns a UK rental property valued at £2.1 million
Holds a UK investment portfolio (ISA and general investment account)
No UK earned income

Impact of the Budget

Higher taxes on savings, investments and income from property:

Tax on income from his rental property and any savings will rise by 2%. UK-taxable investment income (outside wrappers) may also be subject to higher UK rates.
Some tax relief may be due depending on tax-treaty status with his country of residence.

‘Mansion tax’:

At £2.1 million, his property falls within the lowest tier of the new high-value surcharge, at £2,500 per year. In practice, some of this cost may be passed onto the tenant, but he should expect an increase in costs.

New cash ISA rules:

From April 2027, the amount that UK residents can save in a tax-free cash-ISA is reduced to £12,000 per year for those under 65. As a non-UK resident, our case study cannot make further ISA contributions, so this does not affect him. Existing ISA assets remain fully tax-sheltered.

Inheritance Tax exposure:

His UK assets only, including his property and investments, fall within the scope of UK Inheritance Tax. Tax is payable on assets above the tax-free Nil-Rate Band of £325,000.
Any UK pension savings will be affected by changes announced earlier in the year. From April 2027, pension savings become part of an individual’s estate and may be subject to Inheritance Tax.
The Nil-Rate Band has been frozen at £325,000 since 2009, meaning that more Inheritance Tax is payable on more estates as inflation rises.

Overall effect:

Th expat’s tax burden increases through the new high-value property surcharge and through higher taxes on his income from property and some UK investments. It would be prudent to review his investments and also consider what could be done from an Inheritance Tax perspective. He may wish to consider whether it still makes sense to retain a £2.1m property in the UK.

Case study 2

Overseas retiree (non-UK national) with UK property and investments

Age 67, retired
Lives permanently outside the UK
Not classed as a Long-Term Resident in the UK
Owns a UK residential property valued at £500,000
Holds £200,000 in UK investments
No UK earned income
Taxable in the UK solely on UK property income and certain UK-sourced investment income

Impact of the Budget

Investment income taxation:

She will pay more tax on dividends and income from savings. In April 2026, the basic rate on dividends will rise to 10.75% from 8.75%, the higher rate to 35.75% from 33.75%, and the additional rate will remain at 39.35%. Any income from savings will be taxed at 2% more.
Some tax relief may be available.

Property valuation and taxation:

Her £500,000 property is below the high-value mansion-tax threshold, so the new surcharge does not apply.
Tax increase of 2% on her rental income

Cash ISA allowance:

Unaffected as unable to contribute to an ISA due to non-residency status.
Existing ISAs remain protected.

Frozen income-tax thresholds:

Minimal impact as she has no UK-earned income.
UK property income remains taxed under standard non-resident landlord rules.

Inheritance-tax position:

Like case study one above, she is only exposed to UK IHT on UK assets above the Nil Rate Band of £325,000 (i.e. property and UK investments). The same considerations apply.

Overall effect:

Her exposure to the Autumn Budget changes is relatively limited compared to UK residents. The main impact is the higher tax on UK investment and property income, which erodes returns modestly. Nevertheless, regular reviews remain important. In addition, she might want to explore the most efficient way of passing on the UK property to heirs.

Final thoughts

‘Many clients have deferred making decisions due to uncertainty over what the Budget might bring. Now, we can all plan ahead with greater confidence,’ says Paul Willans, Managing Director of AJB Wealth. ‘Whatever your circumstances, it’s essential to review your investment portfolio and overall financial situation at regular intervals – if only to confirm that everything is as it should be.’

AJB Wealth acts for both overseas and UK clients. To discuss any financial planning or wealth management matters, please book a meeting, or call us on 01428 774 070.

Important: The content of this bulletin is for general consideration only and does not constitute advice. No action must be taken, or refrained from being taken, without advice. This company accepts no responsibility for any loss occasioned as a result of any such action, or inaction. You are also reminded that investments can fall, as well as rise. And in the event of early encashment, you may receive less back than your original investment.

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