Many South African expats living in the UK traditionally return home during the festive season to enjoy the summer sun and reconnect with loved ones. But this year, there’s a crucial financial matter demanding urgent attention. The UK is set to overhaul its tax regime, abolishing the long-standing non-domiciled status and implementing a residence-based taxation system from 6 April 2025.
This change means that South African expats who moved to the UK before 6 April 2022 will soon be subject to UK tax on their worldwide income and assets. This includes properties, shares, retirement funds, and even trusts located in South Africa. Getting advice and restructuring their South African financial affairs early in the new year is crucial to avoid double taxation and protecting wealth.
Understanding the Fundamental Changes
For over 200 years, the UK’s non-domiciled tax regime offered a unique advantage to South Africans in the UK. Previously, expats could keep foreign earnings and assets outside the UK tax net, provided those funds were not brought into the country. However, the recent policy shift – ratified by the new Labour government in November – signals a broader global trend towards increased tax transparency and reduced avoidance.
What This Means for Your Finances
The new rules will effectively treat South African expats as if they were UK-born residents, significantly expanding their tax obligations. This isn’t just a minor adjustment – it’s a complete overhaul of how foreign income and assets are taxed in the UK.
Income and Capital Gains: A Stark New Reality
The most immediate impact of the new residency regime will be the increased tax to be paid on international income and gains. For example dividends from South African shares, currently taxed at 20%, could now attract UK tax rates up to 39.35%. Similarly capital gains from selling South African assets could be taxed at 24%, compared to South Africa’s maximum of 18%. South African pension fund and retirement annuities are also a serious tax risk: withdrawals may now trigger additional UK tax, even after South African PAYE has been withheld if the Double Tax Agreement (DTA) is not correctly applied.
The Inheritance Tax Bombshell
Perhaps the most significant consequence is the dramatic expansion of UK inheritance tax. Under the current rules, South African non domiciled expats were typically exempt from inheritance tax on assets outside the UK. Under the new system, UK inheritance tax will charged on all global wealth – including family homes, investments, and business interests in South Africa – potentially at rates up to 40%.
Trusts Under Threat
Trusts, which have long been a popular strategic tool for South Africans to protect and manage their wealth, will be gutted by the new UK tax rules. UK tax residents, who have established non-UK trusts, even before moving to the UK, may now face paying annual UK taxes on any income or capital gains earned in the trust, even if no distributions are made. Even more critically, long-term UK residents will see their non-UK trust assets exposed to UK inheritance tax for the first time. The previous protections that made trusts a safe haven for wealth preservation are now being systematically dismantled.
A Narrow Window of Opportunity
While the changes may seem daunting, there’s a critical opportunity over the next few months to limited the damage. The UK government has introduced transitional provisions that allow for strategic financial restructuring. There is a 4 year tax holiday on foreign income and capital gains for new emigrants to the UK. In addition for those who have already been in the UK for longer, the Temporary Repatriation Facility permits expats to remit accumulated foreign income and gains to the UK at a reduced tax rate of just 12% for the upcoming UK tax year.
Key Actions to Protect Your Wealth
Professional Guidance: Engage experts with deep knowledge of both South African, UK tax laws and double tax agreements to help minimise the impact.
SA asset review: Consider urgently cashing out your SA retirement savings and disposing of your SA assets to lock in the lower tax rates.
Trust Restructuring: Carefully examine and potentially redesign existing trust arrangements.
Leverage The Temporary Transitional Measures: Take advantage of the Temporary Repatriation Facility and 4 year tax holiday on foreign income and gains before it expires.
Don’t Wait Until It’s Too Late
With less than 4 months remaining before these sweeping changes take effect, procrastination is not an option. This holiday season is more than just a time for relaxation for South African expats– it’s a critical window to safeguard your financial wealth.
Time is running out. Consult a cross-border tax expert to start 2025 with a credible financial plan to deal with the upcoming challenges.
