Removal of personal allowance for non UK residents

In this year’s budget the UK government announced that it would restrict access to the personal allowance. The “rationale for change” is that people with highly dubious connections to the UK are claiming the UK personal allowance.

The consultation period ended mid-October and the government is still analysing feedback, as of the time of writing. The the final rules should be in place by January 2015.

As you can imagine, this has many people worried about the potential effect on their income and has made good negative press fodder for the media at large, where parts of the document have been taken out of context. This is causing considerable panic and anxiety, which is likely to be completely unwarranted.

There is absolutely no doubt that the effect of the removal of the allowance would have a major impact for many people with a significant portion of their revenue coming from the UK. We are of the opinion, having reviewed the discussion document issued by the government, that this is unlikely to affect the vast majority of British people living in France.

Most pensions are taxable only in France, in line with the UK / France double tax treaty. If the personal allowance is removed in the UK, this makes no difference as this income is not taxable in the UK.

Government worker / war pensions are taxed in the UK and so the loss of the personal allowance would have a huge impact. The government has outlined that it would not wish to remove the personal allowance for this income, so no effect here either.

The document then goes on to explain the ‘economic connection’, suggesting that those who are deeply financially connected to the UK are unlikely to lose their right to the personal allowance.

It cites, as a current example, a UK national, born overseas, who has never lived in the UK, inherits a UK property and then rents it out for income. If the revenue received is below the personal allowance of £10,000 then there would no UK tax due. The document is questioning if this is fair and this is likely change under the new rules.

The discussion document does not offer a percentage of income required to be deemed as having a strong financial connection to the UK. One might, however, offer conjecture that someone with more than three quarters of their income deriving from the UK would qualify. This is likely to include rental property, for example, another area where expats may find themselves affected by this possible rule change.

The majority of people that we meet have worked most of their lives in the UK, have significant pension income and may also have UK rental income. It is quite clear that these people are very unlikely to be affected by the proposed changes.

In summary a discussion document is just that, and we will not know the results of it until the end of the year. This is a mere brief summary of what is a very long document, however, in our view, most British people moving to or living in France are unlikely to be affected.

 

This article was written by Robert Kent of Kentingtons and was first published in the French property News in December 2014 and has been reproduced here with their kind permission

 

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