Expats face £400 million tax raid

[Jako]

Expats who rent out their homes in Britain will be stripped of the right to

use the personal allowance, under a tax raid prepared by George Osborne.

Britons could be forced to return from retirements overseas if the Chancellor

presses ahead with plans to force non-residents to pay tax on all their UK

income, accountants warned.

Retirees drawing a Government pension are also likely to be hit by the

proposals, which could cut a couple’s income by up to £4,000 a year.

At present, EU nationals and British expats are entitled to offset income

earned in the UK against the £10,000 personal allowance.

Mr Osborne first indicated his desire to curtail the allowance in the March

budget.

Under Treasury proposals released for consultation, the allowance would be

restricted to people with a “strong economic connection” to Britain,

bringing the tax regime into line with the US, Canada and much of the EU.

The move could affect up to 400,000 people and raise the exchequer an extra

£400 million a year.

It would include 175,000 people who live abroad and earn an income from

property in Britain.

Many of the 1.2 million British retirees living overseas will not pay extra

tax on their pension because they are either UK residents for tax purposes,

as they spend half the year in Britain, or because most state or private

pensioners are only taxable in the country of residence.

However, UK government pensions are only taxable in Britain, meaning that

unless the Treasury introduces exceptions, former civil servants, NHS

workers and council officials living overseas will pay more tax.

British diplomats and missionaries who are currently entitled to the personal

allowance may also be hit by the tax changes, the Treasury consultation says.

While some expats will be able to claim tax relief from their country of

residence, those living in low-tax jurisdictions - such as Hong Kong and

Dubai - will pay more tax overall.

Jackie Hall, a tax partner at accountants Baker Tilly, said expatriates should

consider selling their UK rental properties and reinvesting the money in

shares or property abroad.

Some Britons may be forced to abandon a carefully-planned retirement overseas

and return to Britain if the tax changes mean they no longer have enough to

live on, she warned.

“Our pensioners who’ve gone abroad are going to suffer the biggest impact,”

she said.

“If you have already jumped ship and are reasonably comfortable, this could

turn the tide against you. Those people may begin to struggle because they

haven’t got the income in retirement that they thought they had.”

The Treasury said no decision has yet been made.

A spokesman said: “The increases the government has made to the personal

allowance support hardworking people by helping them to keep more of the

money they earn and, as a result, is one of the most generous in the world.

"At the same time, we believe that it is reasonable to consider whether

non-residents who receive income from the UK are paying a fair share of tax

on that income, in this country.”

Source:

http://www.telegraph.co.uk/finance/personalfinance/expat-money/11027075/Expats-face-400-million-tax-raid.html

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The article looks ok in the preview, but parts are missing.

[crabtree]

The Government does not intend to remove personal

allowances from those only in receipt of Government pensions. Here is a

link to the full Consultation document:-

https://www.gov.uk/government/consultations/restricting-non-residents-entitlement-to-the-uk-personal-allowance/restricting-non-residents-entitlement-to-the-uk-personal-allowance

Extract from the relevant section:

"However, under double tax treaties, UK sourced government service

pensions (a wide category which includes, amongst others, some NHS staff

and those employed by local authorities) are generally only taxed in

the UK, regardless of recipients’ residence status. This can also be the

case with some other forms of income under specific treaties. The

withdrawal of the UK personal allowance from non-residents in receipt of

a UK government service pension would result in them paying more tax

overall as there is no overseas tax liability against which the

additional UK tax could be relieved.

The government is concerned that individuals, like those in receipt

of government service pensions, who are not eligible for double taxation

relief, would be disproportionately affected by the removal of the UK

Personal Allowance.

The government does not intend to raise taxes on vulnerable groups or

in situations where the UK is the principal taxing authority and an

individual has no recourse to relief as a result of the UK having sole

taxing rights under a tax treaty. If the government were to restrict

non-residents’ entitlement to the Personal Allowance, it would intend

this to apply to types of income which are taxable both in the UK and

overseas (such as that from immovable property) but to retain the

Personal Allowance on income that is taxable exclusively in the UK."

[Debra]

It also won't necessarily affect pensioners with rental income.  It reads that it's more likely that if the majority of one's income arises from the UK then the personal allowance will be retained.  So if you're living off an old age pension, a private UK pension and UK rental income (which a lot of people over here are) then you won't be affected.  They're suggesting 75 or 90% of income arising in the UK will be the relevant cut off point.