Trump’s Re-Election – Impact on British and American Expats
Financial experts told the press following the US election that Donald Trump, now president-elect, has a history of implementing tax cuts. If he introduces similar measures during his next term, high-earning British expats in the USA could stand to benefit. However, they may face financial setbacks if further reforms are made to the Universal Care Act. Additionally, Trump’s tough stance on immigration could impact expat visas. On the other hand, deregulation—particularly in sectors like energy—might boost stock prices, potentially benefiting those with investments in the States.
It’s too soon to say exactly what the market might do. Changes in interest rates could affect UK pensions, but whether expats could gain or lose remains to be seen. Financiers suggest keeping an eye on any changes to the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC). Hoxton Wealth, for instance, says that deregulation could benefit expats “in terms of ease of banking, investment opportunities, and access to various financial products without increased compliance burdens.”
As for American expats abroad, Trump promised earlier in the year that if elected, he would get rid of double taxation, a particular bugbear of Americans abroad. A lot of US expats don’t pay tax, but they still have to file nonetheless and the paperwork is complex and time consuming. Support for reforming double taxation schemes has been bipartisan, supported by both Republicans and Democrats, but it remains to be seen whether the incoming administration will carry out this necessary move.
Portugal: Tax Cuts
Portuguese PM Luís Montenegro’s government has introduced recent measures to cut income tax for young people, in a double pronged attempt to persuade young Portuguese people to remain in the country, and equally, to induce under 35s to move to the country from abroad. Anyone under the age of 35 earning up to €28K in their first year of work would be exempt from income tax entirely under the proposed new moves, coming down to 25% between the eighth and 10th year of work. Statisticians report that around 30% of Portuguese youngsters between 15 and 39 currently live abroad, in search of higher salaries.
Youth minister Margarida Balseiro Lopes says that “the cost to the country of having the most qualified generation ever, fleeing and leaving and emigrating, is incomparably higher than the financial cost of the measure.” However, that cost will be substantial: it is estimated that the project will cost the state in the region of €650m.
The budget bill has passed its first reading, securing the government’s position. However, critics argue that it primarily aims to attract wealthy expats and fails to address the issues driving young Portuguese citizens to leave. Many, for instance, move to the UK, where wages are approximately three times higher than in Portugal.
UK Winter Fuel Payments
As pensioners in the UK will already be aware, the incoming Labour government has slashed winter fuel payments in its first months of office, pointing out that the tax is not currently means tested and thus goes to the well off as well to those who need it.
If you are a British pensioner in the EU, you may still be eligible for the payment, but unfortunately this will vary across the EU due to then-Chancellor George Osborne’s ‘temperature test.’ For example, The Department for Work and Pensions (DWP) stipulates that winter fuel payments are only payable to eligible pensioners in the EEA and Switzerland where the average winter temperature is the same or lower than the south west (the warmest part of the UK). The test, imposed in 2017, ruled pensioners resident in Cyprus, France, Greece, Gibraltar, Malta, Portugal and Spain out of WF receipt, but even so, over 34,000 payments were made to British pensioners across the EU in the winter of 2023.
The new payments will be means tested. The government says that you will be eligible if:
- You have reached official UK state pension age
- You receive a UK state pension
- You have a genuine and sufficient link to the UK – this could include having lived or worked in the UK
- The UK is responsible for paying your benefits
- You moved to an eligible country before 31 December 2020 and are covered by the Brexit Withdrawal Agreement
However, you will also need to receive an “equivalent benefit” to Pension Credit in your country of residence, and it is currently not clear what this actually means. The DWP are apparently in the process of clarifying this.
Short-Term Tax Holiday Fear for London
From April 6 2025, a four-year residence-based scheme will replace the old non-dom ruling, but critics say that this runs a risk of turning the UK into a mini version of the Bahamas. Under the new regulations, if you haven’t been a tax resident over the previous 10 years prior to your arrival, you’ll get 100% relief on capital gains and foreign income for your first four years of tax residence.
The criticisms of these new measures revolve mainly around the length of the scheme. Some financial experts believe that it will attract people who want to reorganise their tax affairs on a short-term basis, rather than expats who want to invest long-term in the UK, resulting in ‘short-term and transient’ visitors. Chancellor Rachel Reeves has also carried out a raid on long-term non-doms’ foreign assets in offshore trusts, which will now be subject to inheritance tax.
The government says that the new residence-based system:
“…will affect the scope of non-UK property brought into UK Inheritance Tax for individuals and trusts. An individual is long-term resident (and in scope for Inheritance Tax on their non-UK assets) when they have been resident in the UK for at least 10 out of the last 20 tax years and then remain in scope for between 3 and 10 years after leaving the UK. Subject to transitional points, any non-UK assets a person put into a settlement will be subject to Inheritance Tax charges at times when the settlor is long-term resident.”