Historically, numerous South African expatriates living in the UK return home during the holiday season to enjoy the summer warmth and reconnect with loved ones. However, this year, there’s a pressing financial matter that demands urgent attention.

The UK is set to overhaul its tax framework, ending the longstanding non-domiciled status and implementing a residence-based taxation system effective from 6 April 2025.

Read: Persistent emigration and tax misconceptions

This new regulation indicates that South African expats who moved to the UK before 6 April 2022 will soon be accountable for UK tax on their worldwide income and assets. This includes properties, stocks, retirement funds, and even trusts located in South Africa.

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

Understanding the changes

For over 200 years, the UK’s non-domiciled tax structure afforded considerable advantages to South Africans living in the UK.

In the past, expatriates could keep foreign earnings and assets outside the scope of UK taxation as long as those funds were not remitted to the country. However, the recent policy shift – sanctioned by the newly elected Labour government in November – reflects a broader global movement towards increased tax transparency and reduced tax avoidance.

This new legislation will essentially treat South African expats as if they were UK residents, significantly increasing their tax obligations.

This is not just a minor amendment – it signals a fundamental shift in the taxation of foreign income and assets in the UK.

The most immediate outcome of the newly implemented residency system will be increased taxes on foreign income and gains. Dividends from South African shares, currently taxed at 20%, might now face UK tax rates of up to 39.35%.

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

Additionally, capital gains from selling 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 may also present considerable tax risks.

Withdrawals could trigger additional UK taxes, even after South African PAYE has been withheld, if the Double Tax Agreement (DTA) is not correctly enforced.

One of the most significant repercussions is the considerable expansion of UK inheritance tax.

Currently, South African non-domiciled expats are generally exempt from inheritance tax on assets located outside the UK. However, under the new regulations, UK inheritance tax will apply to all global assets – including family residences, investments, and business properties in South Africa – potentially at rates up to 40%.

Trust Risk

Trusts, which have long been regarded as a reliable strategy for South Africans to protect and manage their wealth, will face significant challenges due to the new UK tax regulations.

UK tax residents with non-UK trusts, established before their relocation to the UK, may now find themselves liable for annual UK taxes on any income or capital gains produced by the trust, regardless of whether any distributions occur.

Even more alarmingly, long-term UK residents will now see their non-UK trust assets subjected to UK inheritance tax for the first time.

The previous safeguards that made trusts a haven for wealth preservation are now being deeply compromised.

While these changes might seem daunting, an essential opportunity exists in the coming months to mitigate potential impacts. The UK government has implemented transitional provisions that encourage strategic financial restructuring. A four-year tax exemption 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 expats to transfer accrued foreign income and gains to the UK at a reduced tax rate of just 12% for the upcoming UK tax year.

Key Actions

1. Consult with professionals well-versed in both South African and UK tax laws, as well as double tax agreements, to help alleviate the impact.
2. Consider promptly liquidating your South African retirement savings and assets to benefit from lower tax rates.
3. Evaluate and potentially redesign existing trust arrangements.

4. Take advantage of the Temporary Repatriation Facility and the four-year tax exemption on foreign income and gains before these opportunities expire.

With less than four months remaining before these substantial changes take effect, procrastination is not an option. Action must be taken without delay.

* Michael Kransdorff is the CEO of the Institute for International Tax and Finance.

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