🇬🇧 UK Budget 2025: What Really Matters for British Expats

Class 2 NI removed, dividend taxes rising, and pension fears avoided. Here is what expats actually need to know.

The UK Budget delivered a mix of relief and frustration for British expats. After months of speculation about pension cuts and sweeping reforms, the Chancellor avoided the biggest threats. However, one major change will affect almost every British citizen living abroad.

British expats face major changes to National Insurance and dividend taxation in the UK Budget 2025.

1. The end of Class 2 National Insurance for expats

This is the single most important change for anyone living overseas. From April 2026, expats will no longer be able to pay Class 2 voluntary National Insurance contributions. These payments have been the most affordable way to build entitlement to the UK state pension, often costing around one fifth of the alternative.

Class 3 contributions will still be available, but only for those who meet a new ten year UK residency or contributions requirement. Class 3 contributions are significantly more expensive and for many expats will no longer offer the same value.

Expats who want to maximise their state pension should check their National Insurance record now. If you have gaps, you still have time to fill them at the current, far cheaper rate before the April 2026 deadline.

2. Pension tax relief and tax free cash remain intact

Despite widespread concern, the Chancellor did not touch the key benefits of UK pensions.

The 25 percent tax free lump sum remains available. Higher rate and additional rate tax relief remain in place. There is no return of the Lifetime Allowance.

This is a welcome outcome for anyone with UK pensions. The current framework continues to offer strong long term advantages for retirement planning, whether you remain abroad or eventually return to the UK.

3. Salary sacrifice will be restricted from 2029

Salary sacrifice arrangements have been widely used by UK workers to reduce income tax and National Insurance while boosting pension contributions. From 2029, only the first two thousand pounds of pension contributions made through salary sacrifice will receive the existing National Insurance benefit. Amounts above this will attract full National Insurance for both employee and employer.

This change mainly affects those working in the UK. It is nevertheless important for expats who may return home in the coming years, as it will reduce the efficiency of future pension contributions.

4. Dividend tax will increase from April 2026

Dividend tax rates will rise for all taxpayers. The basic rate will move from 8.75 percent to 10.75 percent. The higher rate will move from 33.75 percent to 35.75 percent.

This change affects expats who receive UK dividend income, hold UK shares in a general investment account or own UK companies and take income through dividends. Since dividends come from profits that have already been taxed at the corporate level, these increases will be felt strongly by business owners and investors.

It may be worth reviewing the structure of any UK investments to ensure they remain efficient under the new rates.

5. Frozen income tax thresholds until 2031

UK tax thresholds will remain fixed for several more years. This means more people will gradually drift into higher tax brackets purely because of inflation and wage growth.

For expats planning to move back to the UK, it is important to understand that the tax environment will feel noticeably heavier than in the past.

6. A small positive for some older pension rights

Pensions earned before 1997 within the Pension Protection Fund will now receive mandatory inflation protection. This will benefit a relatively small group but is still a positive change for those affected.

What this means for British expats

Three points matter above all others.

✅ You still have time to top up your UK state pension cheaply, but this opportunity ends in April 2026. Check your NI record immediately.

✅ UK pensions remain highly tax efficient, which brings welcome stability after months of uncertainty.

✅ Dividend income from the UK will be less attractive, particularly for business owners and investors with unwrapped portfolios.

If you want a personalised review of how the UK Budget impacts your retirement pathway, tax position and future contributions, reach out to Max Foresight. I will help you align your strategy with the new rules and keep your long term plans on track. info@maxforesight.com