Urgent Alert for South African Expats in the UK: Don't Miss Out on Tax Benefits! -

Historically, numerous South African expatriates living in the UK make the trip back home during the festive season to enjoy the summer warmth and reconnect with relatives and friends. Nevertheless, this year presents a pressing financial concern that demands urgent attention.

The UK is set to overhaul its tax system by abolishing the long-standing non-domiciled status and implementing a residence-based taxation model starting from 6 April 2025.

Read: Persistent emigration and tax misconceptions

This new policy means that South African expats who moved to the UK before 6 April 2022 will soon be responsible for UK taxes on their worldwide income and assets. This includes properties, shares, retirement funds, and trusts based in South Africa.

It is crucial to obtain advice and reorganize their South African financial affairs early in the next year to avoid double taxation and protect their wealth.

Grasping the Changes

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

In the past, expatriates were able to keep their foreign income and assets out of the UK tax system as long as these funds were not brought into the country. However, the recent policy shift – approved by the new Labour government in November – represents a broader global movement towards heightened tax transparency and reduced avoidance.

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

This is not just a minor adjustment; it signifies a radical change in how foreign income and assets are taxed in the UK.

The immediate effect of the newly established residency framework will be increased taxes on international income and gains. Dividends from South African shares, presently taxed at 20%, may now be subject to UK tax rates reaching up to 39.35%.

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

Additionally, capital gains from the sale of South African assets could now be taxed at 24%, compared to South Africa’s maximum rate of 18%. Pension funds and retirement annuities from South Africa could also become significant tax liabilities.

Withdrawals might now incur further UK taxes, even after South African PAYE has been deducted if the Double Tax Agreement (DTA) is not properly utilized.

One of the most alarming implications is the substantial extension of UK inheritance tax.

According to current guidelines, South African non-domiciled expatriates were generally exempt from inheritance tax on assets held outside the UK. Yet, under the new system, UK inheritance tax will apply to all global wealth – including family homes, investments, and business assets in South Africa – potentially at rates as high as 40%.

Trust Risks

Trusts, traditionally considered an effective means for South Africans to protect and manage their wealth, will see significant changes due to the new UK tax regulations.

UK tax residents who have set up non-UK trusts, including those established before they moved to the UK, may now face the obligation to pay annual UK taxes on any income or capital gains generated within the trust, regardless of whether distributions are made.

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

The former protections that allowed trusts to serve as a safe haven for wealth preservation are now being fundamentally challenged.

While these developments may appear overwhelming, there is a vital opportunity in the upcoming months to reduce the adverse effects. The UK government has introduced transitional measures to aid in strategic financial restructuring. A four-year tax holiday on foreign income and capital gains is available for new emigrants to the UK.

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

Essential Actions

Consult with experts who are well versed in both South African and UK tax laws as well as double tax agreements to minimize the impact.
Consider quickly cashing out your South African retirement savings and liquidating your South African assets to take full advantage of lower tax rates.
Review and potentially redesign existing trust structures.