Under current rules, UK nationals are entitled to UK Personal Allowances wherever they are resident. The UK personal allowance is also granted to many non-residents who are not UK nationals, especially where the non-residents’ own country has a tax treaty with the UK.
Most other countries restrict entitlement to their own personal allowances. This means that the UK ends up collecting less tax on the income of non-residents than a comparable jurisdiction.
The UK government has now published a consultation document entitled ‘Restricting non-residents’ entitlement to the UK personal allowance’.
It is currently proposed that the UK government will restrict the availability of the personal allowance to non-residents and that the entitlement to the personal allowance will be based on the economic connection that the non-resident individual has with the UK.
Economic connection is likely to be measured by looking at the percentage of the individual’s worldwide income which arises in the UK. In other countries non-residents with more than the given percentage (generally between 75% and 90%) of their income arising in that country ‘pass’ the test and are eligible for that country’s equivalent of the UK Personal Allowance.
The UK Government has expressed that because of the low administrative burden that this method places on individuals, it is the preferred option.
The government wants to ensure that individuals with strong economic connections to the UK continue to benefit from the generous Personal Allowance.
Most UK national retirees living overseas would not be affected by any restriction on non-residents entitlement to the Personal Allowance. Provisions of tax treaties generally mean that UK state pensions, personal pensions or private sector occupational pensions are only taxable in recipients’ states of residence and not in the UK. Also many non-resident UK national pensioners do not have any other income which is taxable in the UK and would not be affected by losing their Personal Allowance.
At this stage this is only a consultation, and any new rules are unlikely to be passed before the 2015 budget, or possibly even the 2016 budget.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.
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