Chancellor George Osborne is working on another tax raid on expats that will leave many at least £4,000 a year poorer.
Following his plans to make expats pay capital gains tax on the disposal of any assets they own in the UK, now he proposes to take away their right to a personal tax allowance as well.
The measure will hit any expats receiving taxable income from Britain.
Government figures estimate 400,000 expats will lose tax relief on £400 million, which will go straight into Treasury coffers rather than expat bank accounts.
One group facing the biggest tax problem are 175,000 non-resident landlords who face a double-whammy of losing their personal allowance of £10,000 a year to set off against tax on rental profits – while they will also pay capital gains tax if they sell the properties after April 6, 2015.
Pension payments at risk
Wealthy over 55s drawing private or workplace pensions also need to examine their tax planning as they may face additional tax liabilities as well.
However, many could sidestep this problem by considering a transfer into a Qualifying Recognised Overseas Pension Scheme (QROPS).
QROPS pay pension benefits before deducting tax – and the expat receiving the benefit pays tax at the rate in the country where they are tax resident.
The wording of Osborne’s proposal suggests only people with a ‘strong financial connection’ to the UK will retain the personal allowance.
This also creates tax planning issues for expats as HM Revenue & Customs (HMRC) has won a succession of tax tribunal cases against taxpayers claiming non-residency. The key factor in these cases was each taxpayer had strong financial ties with Britain.
Osborne’s intention would seem to be only to allow UK taxpayers to keep the personal allowance.
Festering row
The Treasury says no final decision has been made on the measure.
“The government believes the personal allowance should only be available to those who have contributed financially to the economy and to help hardworking people hold on to more of the money they earn,” said a Treasury spokesman.
“Expats cannot expect to have all the tax benefits of living in the UK after making a decision to leave for elsewhere.”
Besides these tax changes for expats, the government is still dealing with a festering row with many expat state pensioners with frozen payments. Campaigners are lobbying MPs to support a change in the law that stops expats in many countries from receiving index-linked state pension payments.
