Autumn Budget 2025: What British Expats Need to Know
A practical guide for expats with UK pensions, property & investment income.
Introduction: Why This Budget Matters for Expats
Unlike most UK Budgets, the Autumn Budget 2025 contains multiple structural changes that directly impact British expats — especially those with:
- UK pensions
- UK rental property
- Savings and investment income sourced in the UK
- Plans to return to the UK
- Children or partners who will eventually inherit UK assets
Most expats will be affected in at least two or three of these areas.
Below, I’ve summarised each change in plain English, added real-world case studies, and provided clear action steps you can take now.
🗝️ Key Takeaways
- Class 2 voluntary National Insurance (the cheapest way expats top up their UK State Pension) is being abolished from April 2026.
- UK rental income, dividends and savings income will become more heavily taxed, reducing net returns.
- From 2028, high-value UK property owners will face a new annual surcharge.
IHT is moving from domicile-based to residence-based, and pension death benefits will come further into scope.
1. Voluntary National Insurance Contribution Rules Tightened
(Effective 6 April 2026)
What’s changing?
- Many expats can currently use Class 2 Voluntary National Insurance Contributions (NICs) to top up their state pension entitlement.
- At £3.45 per week, this is a great deal.
- However, this possibility will be scrapped from 6th April 2026.
- From then, top-ups will be via Class 3 only, meaning that the cost of contributions will rise more than 5 fold (Class 3 NICs are currently £17.45 per week).
- In addition, to be able to make any voluntary NICs, expats will need 10 years of UK contributions or residency.
Why it matters
If you’re living abroad and planned to fill gaps cheaply via Class 2, that route is closing.
Case Study: “Anna – The Last-Minute Top-Up”
Background
Anna, 62, left the UK for Dubai 12 years ago and planned to top up her NI record using Class 2 before retirement.
The Problem
Under the new rules, she will be blocked from Class 2 and forced to pay the far more expensive Class 3 rates.
The Opportunity
However, if she acts quickly, she should be able to “backfill” the last 6 years at Class 2 rates.
Action Points
- Check your NI record now, not next year.
- If you’re eligible for Class 2, consider backdating before April 2026 (you may be able to go back 6 years and make up missed contributions).
The Outcome
If she expects to return to the UK, building NI planning into her return strategy ensures maximum State Pension entitlement at the lowest possible cost.
2. Higher Tax on UK Rental Property
(Effective April 2027)
What’s changing?
- UK rental income will be taxed under a new property income schedule.
- Basic, higher and additional rates rise to 22%, 42% and 47%.
Why it matters
Non-resident landlords, especially leveraged ones, may see rental profits shrink by 20–30%.
Case Study: “James – The Dubai-Based Landlord”
BackgroundJames owns a UK buy-to-let with a £300,000 mortgage.
The ProblemUnder the new system, his net yield drops by 25%, turning his formerly profitable rental into a marginal one.
The Decision PointHe’s now weighing whether to sell, incorporate, or restructure borrowing.
Action Points- Recalculate post-2027 yields using the new tax rates.
- Review whether incorporation or restructuring makes sense.
Consider selling property that no longer fits your long-term plan.
3. Dividend & Savings Income Tax Rates Are Rising
(Dividends: April 2026 | Savings: April 2027)
What’s changing?
- Dividend tax rises from 2026.
New rates (Dividends)
- 10.75% (basic)
- 35.75% (higher)
- 39.35% (additional – unchanged)
- From 2027, tax on savings income (interest, bond gains, etc.) rises across the board.
New rates (Savings Income)
- 22% (basic)
- 42% (higher)
- 47% (additional)
Why it matters
Many expats rely on UK-based investment income. These changes reduce net income and affect:
- UK-domiciled investment platforms
- Portfolio bonds
- Corporate distributions
- Income from UK collective funds
Action Points
- Review UK-sourced dividends and interest.
- Consider accelerating withdrawals before April 2026/2027.
- Review the sequence in which you plan to draw down worldwide income.
- Explore structures that may be more tax-efficient in your country of residence.
Case Study: “Portfolio Bonds Still Working for Expats”
BackgroundImportant: while the tax rates on savings income are rising, none of the core portfolio-bond planning advantages have been changed. All existing features remain in place, including:
- Gross roll-up of return.
- The 5% annual tax-deferred withdrawal allowance.
- Top-slicing relief.
- Time-apportionment relief.
- The ability to assign segments without triggering tax.
Portfolio bonds, therefore, continue to offer a flexible and tax-efficient structure for clients planning a UK return or managing cross-border investment income, even though the tax rates applying to gains will be higher from 2027.
Further Reading4. New Surcharge on High-Value UK Homes
(Effective April 2028)
What’s changing?
An annual surcharge applies to residential properties worth £2 million+.
Rates:
- £2m–£2.5m: £2,500 per year
- £3m–£4m: £3,500 per year
- £5m+: £7,500+ per year, rising with inflation
* These amounts will rise with CPI from 2029–30.
Why it matters
Expats often keep a future “return home” property in the UK.
This surcharge raises the cost of holding such a property long-term.
Case Study: “David & Sarah – London Flat Owners Abroad”
BackgroundThe couple own a £3m London flat which they rent out while living overseas. From 2028, they face a £3,500 annual surcharge. Their long-term plan to “keep the flat just in case” is now up for debate.
Action Points- Review the long-term role of high-value UK property in your retirement.
- Consider selling or restructuring ownership (company/trust) if appropriate.
- Build the surcharge into your long-term cash-flow forecasts.
5. Inheritance Tax (IHT) & Pension Reform: A Critical Window
(IHT: Already changing | Pensions: April 2027)
What’s changing?
- IHT is shifting from domicile-based to residence-based.
- UK pensions may come into greater IHT scope from April 2027.
- This could affect unused pension pots, lump-sum death benefits, and wealth left to heirs abroad.
🔗 Are UK Pensions Now Liable for Inheritance Tax? The New Pension IHT Rules Unpacked
🔗 Planning to Return to the UK? How the 2025 IHT Changes Could Affect Your Estate
Why it matters
Many expats have assumed their pensions were outside IHT — this may no longer be true.
Case Study: “Nigel in Bulgaria – UK Pension Holder”
BackgroundNigel hoped to leave his UK pension to his daughter tax-free. Under the new rules, a £600,000 pension pot may be partially subject to IHT unless he restructures, potentially costing the family £110,000. In addition, his daughter may have to pay UK income tax on any pension she receives from him.
Action Points- Review pension nominations immediately.
- Reassess your IHT strategy in light of residence-based rules.
- Consider gifting, trusts, or pension withdrawals before April 2027.
- Speak with a cross-border adviser (this is not the year to DIY).
❓ FAQ: 10 Common Questions from British Expats
1. Can I still pay voluntary NI after April 2026?
Yes, but only through Class 3 and only if you have 10 years of UK contributions/residency.2. Is Class 2 NI definitely ending?
Yes, it will be abolished for expats from April 2026.3. Will my UK State Pension be affected?
Yes, if you have gaps. Filling them becomes more expensive later.4. Are UK rental properties still worthwhile for expats?
For some, yes. However, leveraged landlords will feel the squeeze and may see yields fall 20–30%.5. Do the budget changes affect expats who never plan to return to the UK?
Yes. Rental income, dividends, savings income, and IHT rules still apply to non-residents.6. Does the IHT reform affect my overseas assets?
If you become Long Term UK-resident again, yes — your worldwide assets may come into scope.7. Will my UK pension be subject to IHT?
Potentially from April 2027, depending on structure and beneficiaries.8. Should I withdraw pension money before 2027?
Maybe. But only after tailored advice and cash-flow planning.9. Are portfolio bonds still a good option for expats?
Yes. They continue to offer a flexible and tax-efficient structure for clients planning a UK return or managing cross-border investment income.10. How do the new budget rules affect my tax if I return to the UK?
They massively increase the importance of timing, pension structure, and asset location decisions.📚 Further Reading
🔗 Confirmation from Gov.UK that Class 2 National Insurance Contributions for expats are ending
🔗 Planning to Return to the UK? How the 2025 IHT Changes Could Affect Your Estate
🔗 Expat Life and Financial Planning: The Known Knowns, Unknown Unknowns, and the Unexpected
🔗 How does UK inheritance tax work when a spouse is non-domiciled?
🧠 Final Thoughts – My Advice to British Expats
This Budget marks a turning point for anyone living abroad with financial ties to the UK.
The new regime demands proactive planning, especially around:
- Pensions
- Inheritance
- Rental property
- Investment income
- Timing of a future UK return
For many expats, the next 12–24 months will be a once-in-a-generation opportunity to protect wealth, secure the State Pension, and avoid unnecessary tax for you and your family.
Talk to an Expert
The Autumn Budget 2025 introduces the biggest set of expat-relevant changes in more than a decade — affecting UK pensions, voluntary National Insurance, rental income, savings income, high-value property, and inheritance tax. For expats with financial ties to the UK, the next 12–24 months represent a critical window to act before higher taxes, reduced allowances and structural reforms take effect.
I’m Ross Naylor, a UK-qualified Chartered Financial Planner & Expat Financial Advice Specialist. For nearly 30 years, I’ve helped British expats navigate UK reforms, protect their income, secure their State Pension, and restructure pensions and estates before rule changes shut down opportunities.
This Budget requires proactive, not reactive, planning — especially if you have UK property, pension pots, investment income, or plan to return to the UK. I can help you assess how the new rules affect you, identify your opportunities, and build a tax-efficient strategy before the deadlines hit.
Book an Autumn Budget planning call