Last Updated on 15th August 2025
The latest freezes to inheritance and income taxes in the Autumn budget were anticipated. However, when combined with a raft of more significant reforms, the government’s strategy of freezing tax reliefs, allowances and exemptions will have a considerable and long-term impact.
Freezing tax reliefs achieves greater tax revenues as assets, income, and capital gains grow and more people fall into higher tax brackets or become liable to pay steep inheritance tax charges. This is often referred to as a ‘stealth tax’ because when tax rates don’t change, but inflation does, this has the same impact as the more controversial and sweeping reforms that have been introduced.
Here, we’ll summarise what these most recent UK tax band freezes mean, recap the additional reforms that are having large impacts on expat wealth management, and explain why foreign nationals or British expats with assets or pension products in the UK are well-advised to schedule a portfolio review as soon as possible.
The Impact of Inheritance and Income Tax Freezes
The UK Personal Allowances remain fixed at £12,570 as do the pre-existing income tax rates. Taxpayers with UK incomes are subject to the basic 20% tax rate on income up to £50,270, the higher 40% rate on earnings up to £125,140 and the additional 45% rate from there on.
Although the government has stated that it will not further extend these frozen tax rates after April 2028, they have already been extended, having originally been due to end in April 2026. Fixing tax brackets is called fiscal drag, as it progressively deducts a higher proportion of income as wages increase. Although this may not seem a dramatic change, the outcomes are significant.
In addition, other tax rates have been frozen or increased as follows:
- Capital gains tax rates rose in October 2024, from 10% and 20% to 18% and 24% for lower and higher rate profits, combined with the allowance now being just £3,000 compared to the previous £12,300.
- Inheritance tax nil rate bands have also been frozen, in this case until April 2030. That means the allowance will have stayed at £325,000 for 21 years, creating higher tax burdens for families and beneficiaries.
- Annual ISA contribution thresholds have been frozen at £20,000, again until 2030.
This all means that it is now more important than ever to review your income structures and sources and prioritise tax efficiencies, particularly if you are on the cusp of the additional 45% income tax band, intend to sell or transfer assets with a taxable gain, or are revising your succession planning.
Being proactive around any anticipated earnings increases or taxable gains can offer an opportunity to reconfigure your portfolio or reduce your obligations by applying all available allowances and exemptions.
Changes to Pensions Taxation and Overseas Transfers
Alongside frozen tax bands and rates, some of the reforms most likely to have a sizable impact on expats relate to their pensions and the way they manage retirement wealth across borders.
The Overseas Transfer Charge
Effective from October 2024, the previous exemptions that permitted expats to transfer UK pension funds to HMRC-approved ROPS in other countries without a tax burden have been abolished.
While expats can transfer their pensions to a country in which they are already resident without paying the 25% Overseas Transfer Charge (OTC), this can only be applied in limited circumstances. For example, expats resident in the EU have long chosen ROPS in countries like Malta, given that there may be no approved schemes available in their place of residence.
The impact is that most expats deciding whether to transfer a pension will have to incorporate a considerable 25% tax charge into their plans, while also recognising that the next reform we’ll discuss could equally mean that keeping pension funds in the UK isn’t a desirable option.
The Inclusion of Pensions and Death Benefits in UK Inheritance Tax
As of April 2027, UK IHT will apply to a greater range of assets and include unused pension funds and life insurance products that provide a death benefit. While life insurance and pension schemes have been regarded as a stable way to protect wealth for the future, this now means families and other heirs could face a tax bill as high as 40%.
The issue is that transferring a pension out of the UK to avoid this also means likely exposure to the OTC as above, which means that informed, professional advice is essential to help expats make the right decisions for themselves and their families.
How Do UK Tax Band Freezes and Reforms Impact Expats?
Making full use of all available tax allowances is always advisable. It ensures you won’t pay an unnecessarily high tax bill – but careful planning is required, incorporating the reforms, tax band freezes and legislative changes covered today.
For example, you might consider switching to a tax-efficient pension structure such as a SIPP if you intend to relocate overseas, rather than leaving a pension product in the UK, knowing this could be subject to IHT in the future, or accepting the cost of the transfer taxation.
The timing of that transfer can also influence your overall tax exposure, and we’d encourage you to download our complimentary SIPPS vs ROPS Guide for further information about expatriate pension transfers.
You may also need to analyse your UK assets, calculate your current and future CGT or IHT liabilities, and use that information to make strategic choices about the best way forward.
The takeaway is that, while tax band freezes may not seem anything new, the longer-term impacts on individual portfolios and wealth can be significant, and options to restructure or reinvest assets that proved efficient in the past may not now be as relevant.
Over the next few years, as assets appreciate and incomes grow, the likelihood of falling into a higher taxable position also increases. Still, with a clear asset management strategy, you may be able to put yourself in a far more favourable position.
Please contact your nearest Chase Buchanan Private Wealth Management office at your convenience to schedule a portfolio review, discuss the information within this article, or for advice about the impact of tax freezes on your estate.
All investments carry risk, including the potential loss of capital. You should carefully consider whether investing is suitable for you, taking into account your personal circumstances, financial situation, and risk tolerance.
*Information correct as at August 2025
