Rachel Reeves ‘Cracks Down’ on Expat Pensioners
The fallout from the November budget is still continuing. The so-called ‘mansion tax’ has been dominating the headlines in the UK press, but the Daily Express has also reported that British pensioners living abroad will no longer be eligible to pay Class Two voluntary National Insurance contributions.
What does this mean? The government says that Class Two contributions are treated as having been paid in order to protect your National Insurance record if, for example, you have been living abroad and have gaps in your NI record. However, the current government is planning to stop this practice.
The Chancellor says:
“The Conservatives allowed thousands of people living abroad to buy their way into the state pension for as little as £3.50 a week, debasing the purpose of our pension system. And so I will abolish access to Class Two voluntary national insurance contributions for people living abroad, increasing the time that someone has to live or work in Britain to 10 years and increasing the contributions they must pay.”
If you are resident in the UK, you currently need to have made National Insurance contributions for 35 years in order to claim your state pension, although you are still allowed to make top-ups for any missing years—hence the Class Two guidelines outlined above.
Financial advisers have now had time to assess the November budget as a whole and its further impact on expats. There are four main pillars that may affect you if you’re a British citizen abroad, depending on your circumstances—for instance, whether you own property in the UK. The government says the following will apply:
- Frozen income tax thresholds and National Insurance thresholds have been extended until April 2031, meaning more taxpayers will fall into higher brackets.
- Properties valued at £2 million or more will be subject to a high-value council tax surcharge from April 2028. This is the so-called ‘mansion tax,’ with rates ranging from £2,500 a year to £7,500 a year on properties worth £5 million or more.
- There will be a cap on pension salary sacrifice agreements from 2029, with contributions of £2,000 and above subject to the same rates as other pension contributions.
- New inheritance tax rules are being introduced to allow spouses to transfer 100% of any unused relief, which could be relevant for estate planning.
Increases to the state pension may also be of relevance if you are of retirement age.
Tax experts Chase Buchanan say:
“News of higher taxes, lower allowances and more stringent regulations can cause concern for those with clear, stable and well-thought-out financial plans who now need to revisit the drawing board.”
Spain: New Regulations From 2026
From January 2026, Spanish banks will be required to report all card payments—no matter how small—to the tax authorities. Information about some cash payments and loans will also be reported if they exceed certain thresholds. This will be covered in more detail in January’s update.
Australian Expats Leave the UK
The financial press reported in December that Australian expats are leaving the UK, primarily as a result of tax pressures. While some high-profile millionaires have departed, financial experts are concerned that lower-income expats are also being affected.
Tom Boniface of British accountants and wealth advisers Kreston Reeves told the press that people who have been in the UK for under ten years have been “caught by rules that they weren’t caught by before.” For Australians—who do not have inheritance tax, or who are planning to set up family trusts or have superannuation schemes—there are, he says, “some pretty annoying tax rules to consider.”
He added:
“For Australians to come and live here now, or to stay here long term, their appetite to do so is much, much lower. It sounds good politically, but it is rubbish for the economy.”
Boniface says that superannuation balances held in Australia could be subject to the new inheritance tax rules introduced by Labour, and beneficiaries of non-UK trusts may also be affected by changes in taxation legislation. He reports that some expats are returning to Australia rather than dealing with the new rules, particularly those with modest estates that have risen in value due to increases in property prices. He suggests that Australian expats consider cashing in their superannuation rather than risking falling under new UK inheritance tax laws.
Andy Gibbs of TaxAssist Accountants warns, however, that even if expats return home, they may still be caught in the ‘tax tail.’ Inheritance tax regulations can apply for between three and ten years after leaving the UK, Gibbs says, adding:
“Just because you have gone back to Australia doesn’t mean you are out of the net.”
Some of his clients are instead relocating to Dubai, Italy, and Ireland.
Is Malta the New Dubai?
The Mediterranean island of Malta has been attracting attention in the press recently, with claims that it is the ‘new Dubai.’ Malta has long been popular with expats—particularly Brits—due to its non-dom-style tax breaks and lack of capital gains tax. We reported in September on the island’s growing status as an IORP hub.
The description ‘the new Dubai’ is probably overstating the case, and there are signs that Maltese residents are pushing back against the idea of their island becoming a premier tax haven. Unsustainable construction projects, damage to the marine environment, rising property prices, and pressure on infrastructure are all complaints that have been raised about the so-called ‘Dubai-ification’ of the island—a term in use since at least 2018.
These are long-term issues, and Maltese residents have been calling for tax overhauls to reduce what they see as a two-tier system. The Maltese government has responded to some extent, with changes to the Permanent Residence Programme and the revised Citizenship with Merit scheme. Whether further changes follow will depend on how responsive the government is to its citizens’ concerns.