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Up to 400,000 expats living abroad could be adversely affected by UK government proposals to take away their personal tax allowance. Last year, Chancellor George Osborne raised the UK personal tax allowance to £10,000 with a further increase planned in 2015 to £10,500. However, in new proposals under consultation, the Treasury is seeking to abolish the personal tax allowance for those who do not have a ‘strong economic connection’ to Britain, claiming that this is similar to the situation in the US, Canada and many EU countries.
A Treasury 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.”
Currently, British nationals living abroad can offset income earned in the UK against the personal allowance, and often do so for rental income earned on property they own in the UK. For many, this is a key part of their retirement income. Under the new proposals they will effectively have to pay tax on the full amount of their UK income which could significantly affect their financial situation.
Of the 1.2 million Brits who have retired abroad, those with private pensions will not be affected, however ex-civil servants and those receiving UK government pensions such as diplomats and missionaries will be badly affected as these are only taxable in the UK. Meanwhile, the cash-strapped Exchequer stands to gain up to £400million per year.
In some cases, expats may be able to offset tax paid in the UK against tax paid in their country of residence, but expats living in countries such as Dubai and Hong Kong where taxes are low, will see their overall tax burden increase. Accountants are advising expats who own rental properties in the UK that if the proposals become law, they would be better off selling up and investing either in property abroad, or in shares.
For some who are carefully planning a retirement abroad, this could put the dampeners on their plans and for those living abroad on a tightly-managed budget, it could mean that they are obliged to return home to the UK as their income is no longer able to sustain their life abroad. Many await the Treasury’s decision with trepidation but in the meantime we recommend that all expats who have an income in the UK that currently qualifies for the personal allowance to review their finances to see how removal will affect them.
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Disclaimer: Infinity is not licensed or qualified to give tax advice.
This article is intended for information only and does not constitute tax advice. If you are in any doubt about your tax status please contact a qualified professional.