Proposed changes in UK tax law could sting expats with SA assets

South African expats in the United Kingdom who cash out their retirement savings back home could see those funds being taxed in the UK at rates as high as 45%.

In March, the UK’s governing Conservative party put forward proposals to get rid of the current tax breaks that UK-resident non-domiciled (non-doms) enjoy.

The new amendments would focus on taxing foreign income and gains on a residence basis, writes City Wire. If approved, from 6 April 2025, UK-based Saffas will be taxed on SA-earned income – whether that comes from disposing of SA assets, or withdrawing SA retirement savings.

Switching to the new tax laws

Under the current regime, foreign income and gains would escape the UK taxman unless the individual remitted those funds to the UK.

Individuals are also offered protection from inheritance tax on non-UK assets.

The new tax laws will apply only to people who have not lived in the UK for at least the last 10 years.

Individuals who have been living in the UK for less than four tax years by 6 April 2025 can continue to use the existing tax regime for the remainder of the four-year term.

Once this four-year transitional period ends, individuals will be subject to taxation on their worldwide income and gains.

“New immigrants and returning UK residents will receive a four-year tax holiday on their non-UK income and gains irrespective of whether the funds are remitted to the UK,” said CEO of the Institute for International Tax and Finance, Michael Kransdorff.

Inheritance tax

Getting rid of non-dom status for inheritance tax is also under review, and is likely to follow the new regime.

Exchange controls remain a challenge for SA expats who inherit wealth in South Africa. Inheritances are usually tax-free because they are taxed in the estate.

“But if an expat heir receives an asset [not cash], depending on the timing of disposals, subsequent gains on the disposal of that asset could be subject to capital gains tax in the UK,” Kransdorff noted.

Expats with retirement funds

Regarding retirement funds, SA expats must consider the three-year waiting period imposed by the South African Revenue Service for non-tax SA residents to access retirement annuities.

The UK’s tax amendments now add another layer of complexity.

“For people who emigrate after April 2025, there will be a one-year window at the end of the first three years in the UK, where they can access their SA retirement savings and still fall within the four-year tax holiday and avoid UK tax on their lump sum withdrawal,” Kransdorff added.

Double-tax agreements

Kransdorff emphasised how the interplay between South African tax laws and the double tax agreement (DTA) with the UK also required careful consideration.

“Now the UK has chosen to offer a tax holiday. So, if the shares are sold within the new four-year window, they won’t be taxable in the UK either. If they’re sold outside the four-year window, they will be subject to UK CGT rates.”