Taxation of UK sourced income

The Taxation of UK sourced income.

This concerns you if you are not resident for tax purposes in the UK and …..


You have income from Britain such as rents or investments, interest on savings, dividends, or private pensions which are TAXABLE in the UK ---



What’s happening?


The UK Government has a mind to remove the personal allowances used by non-resident individuals to set against their UK taxable income. This change may well increase the amount of UK tax payable by non-resident individuals such as YOU. See examples below.


The allowance may be retained to set against ex-UK Government service pensions.



How can I tell if I am not resident for tax in the UK?


You can check your UK tax residence status using this online tool:


http://www.hmrc.gov.uk/migrantworkers/tax-non-uk.htm#1


Generally all income sourced in the UK is taxable in the UK, whatever, even if you are not resident in the UK for tax purposes.


Note: You can be resident for tax purposes in two countries in the same year, as most countries use a calendar year for tax purposes but the UK uses the year to 5 April.



What is the personal allowance?


The personal allowance represents the amount of your UK income which is exempt from tax. The allowance is currently worth £10,000 for people born after 5 April 1948, and £10,500 or £10,660 for older people.



Where can I find out more?


The consultation paper containing the Government proposals is viewable here….


http://goo.gl/Jj5D2j
This is just a policy idea at this stage, if sufficient numbers of people object to the proposals (and provide good reasons why), those changes may not happen. The deadline for responses is 9 October 2014. Any one can respond. You may provide comments other than answers to the questions posed.



The Govt tends to count the numbers of responders as an indication of how sensitive a change would be. So please do just that! nonresidentspersonalallowanceconsultation@hmtreasury.gsi.gov.uk



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The effect of the proposal on the citizens abroad who would be affected---


Example 1


Mr Smith was born on 25 July 1949, so he is 65, so only gets the ordinary level of personal allowance for 2014/15: £10,000
Lets say his gross( before tax deducted) UK income is:
UK pensions: £12,000
rent: £12,000
interest (gross): £1000
total £25,000
Less allowance of £10,000 = £15,000 all taxed at 20%
tax payable: £3000.
In practice tax will have been deducted from all of those sources of income before he received them - even the rent , under the non-resident landlord scheme

If Mr Smith did not have the use of the personal allowance he will pay tax of £5,000 on that income - an increase of £2,000


Example 2


Mrs Jones was born on 10 April 1936, so she is now 78. She is entitled to the higher a personal allowance of £10,660, as she was born before 6 April 1938.
Her income is
UK pensions: £20,000
rent: £21,000
interest (gross): £1000
total £42,000
Less allowance of £10,660 = £31,340 all taxed at 20%
tax payable £6268.

If Mrs Jones does not have her personal allowance of £10,660 her income is taxed as:
£31,865 @20%= £6373
£10,135 @40% = £4054
total tax payable = £10,427
A tax increase of £4,159, as her personal allowance is keeping her out of the 40% band

I repeat, the proposals would in particular effect UK citizens who are treated as not resident in the UK for tax purposes, but continue to receive income from the UK such as rent, interest, dividends or pensions.



The added effect of the Double Taxation Treaties on this.


There is a serious error of fact in the consultation paper. It claims that a foreign Govt (such as France) gives a tax credit against the individual’s tax liability in say France of the amount of tax paid in the UK. The Double tax Treaties do not work like that! The foreign Govt ( ie not UK) gives a tax credit of the amount of tax that would have been demanded by France if the income were taxed in France –In many cases that tax credit is a very much lower sum than the actual tax paid in the UK.


Many British Citizens resident in France already lose out considerably. It could get worse.


Email responses to:-


nonresidentspersonalallowanceconsultation@hmtreasury.gsi.gov.uk



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It is surely so obvious that UK citizens abroad need protection from the excesses of the UK Government!


Even though this consultation paper may not affect yourselves it would greatly help those who need a democratic voice to counter this unfairness, to register to vote https://www.gov.uk/register-to-vote


70,000 overseas registrations are needed – I am not asking you to actually vote , but to show solidarity with other British Citizens who are seeking fairness.


It is also necessary to encourage signatures to ---- http://epetitions.direct.gov.uk/petitions/55085


A 70,000 response to the first could trigger the Government to act on the second. It would also assist in the removal of the 15 year limit on political representation - the Vote.




attn Brian M. Much appreciated -

Ah, now individual letters is a different matter. With a bit of luck a few retired lawyers who know both constitutional law and private law, the long bits on personal finances, will write a few rather gutsy letters. However, since I am really not personally affected I shall hold fire on that because I cannot attach myself by the necessary 'hook' required to personalise it. When, down the line an actual petition is required then I shall make sure every UK citizen living here in Europe I know and who knows others is informed and can participate. I have already sent 40 odd people a cut and paste version of your original post. Keep at it Brian and for the sakes of those of us who do not get the information as quickly as we would like to, keep passing it on. If people are going to go down under this present political climate, then lets have at least as many fighting as possible.

attn Brian Milne

Thank you for your interest in the matter. A petition is not proposed in the style of the Gov. Downing Street petitions - such is indeed not appropriate and generally they are a waste of effort. The tax consultant who approached me is suggesting that individuals write to the HMRC giving account of how any removal of tax free allowances (note however the word 'restriction' is used) would affect their income. It is hoped that HMRC will drop the suggestion if many respond - including a number of tax professionals. If the full vigour - ( one might say even partly) of this suggestion were implemented some elderly people - especially those who are unaware of the measures they might take to reduce/avoid some income tax - could be impoverished. Tax treatment and thereby the levels on resident and non-resident Brits would be different on the same income. Mind you it is already for ex-gov service retirees, because the treaty arrangements are not in their favour.

Email responses (one has till October to think about it) to:-

nonresidentspersonalallowanceconsultation@hmtreasury.gsi.gov.uk

I agree that it is potentially nasty, several aspects are also invasive. The UK still has account holder confidentiality, they are effectively making it difficult, if not eventually illegal, to withhold account details. Of course the banks are far to powerful to force them to divulge information, so people are going to be put in a corner. The UKs many thousands of very wealthy tax evaders will remain untouchable whilst the rest of the plebs are hammered. That is all round totally insidious behaviour by HMRC and the Treasury.

I am not affected. I have, mainly because my private pension collapsed, only basic state pension. Too little to tax, so that deals with that. When I eventually get my German pension that will be similar to the UK regulation since I was working within a university and especially since my 'pay' was grants from a UK government department it is tax free. However, I support this action.

What worries me a lot is that it is still only a consultation paper. That means it still has to go to the civil servants, consultants and parliamentarians who will work on the draft. To submit a petition at this stage is to give them licence to then draft an act that would circumvent things petitioned against now. In other words, they will do the same by another route, with another name and by modified means. The government petitions require a largish number of signatories, have deadlines and are one per matter. Therefore, the issue for me is whether this petition is too early and if it comes to nothing and another petition is somehow put together that finds another way of having a go at it, then people who see this one not achieving its intentions will not bother. Sorry to be so glib about it but the whole thing with all 'fights' with the UK government are bun fights full of strategies to act and counteract so that most petitions a) do not get enough support to reach the required number of signatories, and b) they as often as not are helping the government get their way by almost foolproof means having seen the views of the public.

So of course they will try to raise more money by exploiting the weakest but it is in the hands of those affected to find a way of playing a cleverer game than them. I am afraid I have no suggestion but with the present sceptical position being shown toward the EU by increasing numbers of politicians it is not a good time to start seriously asking for political representation for UK nationals in Europe. Furthermore, whatever the outcome of the September election it looks very seriously like Scotland will become responsible for its fiscal affairs and that will complicate matters quite a bit.

Reply to Debra Archer - Hi..

This consultation paper is indicative of an attitude in HMRC (Her Majesty’s Customs and Excise.) to look for more money to collect.

1. It is a discussion document and does not lay down what the final decision will be. Your remarks are picking on a few of the points under discussion. We the citizens abroad need to direct their minds so that damaging decisions are not made affecting us.

2. This matter was drawn to my attention by a tax consultant in the UK. There is a feeling that the document is not good for many citizens abroad. The tax consultants believe that a figure of £1,000 extra tax per citizen abroad (who have UK sourced income) could arise.

3. The point of percentage of world wide income raised would be an intrusion into the income details of citizens abroad which has never been breached before – a step too far! Why should an elderly couple living on a modest income from the UK disclose to HMRC how much they obtain from letting a gîte in France? Or how much comes from running a small market stall in France? Is the form filling and this intrusion acceptable? Just because you are a British Citizen?

4. The situation would be that the smaller your UK income the more likely it is that the HMRC would bite at it! Your world wide income would reduce that UK income to less than 25% (or 10% as the case may be) which would, under their ideas bring it into the UK tax net. This is unacceptable.

5, Their ideas create a cliff edge or threshold in the tax regime. One £ over you lose a lot of cash. One £ under you are OK. But again what right has the HMRC to pry into the details of your world wide income? The French do it but at least you live here.

6. HMRC’s paper starts with the idea ‘If we remove (restrict is the word used) the UK tax free personal allowance on UK source income for expatriates we can collect more money. Then the paper goes on to suggest that this may (will) create hardships for some (many). Then it suggests that their could be ways of alleviating these hardships. The whole bundle is a proposed creation of a complicated fresh bureaucracy,

7. It certainly isn't clear from the consultation paper how much of the personal allowance anyone would keep –

8. Remember the ideas in the paper are just suggestions - it is not fully formed policy. So at this stage the ideas presented in different paragraphs may conflict as they will have not been fully thought through - that's the purpose of the consultation.
If the idea of using a percentage test is shouted down by enough people, it may not happen. The same applies for other ideas presented in the paper. It is for such reasons that the British Citizen in
Europe must have political representation in Britain.

Debra - I must put it quite clearly. The UK Tax department have it in mind to REMOVE all personal allowances from all income arising in the UK for those citizens who live abroad. The exception (and that also is discussed in the said consultation paper as a possibility) is the personal allowance of those who receive pensions as ex-government service employees (Teachers, military, police, local government etc). If your only income is derived from the UK and you are not an ex-gov worker YOU WOULD certainly LOSE these allowances. If your permanent residence is in France then such income as comes from the UK would be fully taxed to the last penny by the UK - every £1 becomes 80 pence @ 20% tax. Many retired people own property to let in the UK and they would be taxed without any tax-free allowance to set against the tax. There is a loophole for Bank interest but many are unaware of it including some banks who do not allow British Citizens living abroad to take advantage of it. The State pension is also not taxed in the UK IF ONE has fulfilled the correct procedure to ensure it has been made fully 'exportable for tax' (as they say in the jargon). Again many have not done so.

Thanks Brian - I am both UK & French Resident. I am writing because at some point in the future my circumstances could change and this could affect me. I strongly urge other SFN members to write to the government and give their view. Please do modify the letter template Brian kindly prepared as I have done in order to help make it easy for you to give your view.

I have modified for my purposes and here is what I have sent:

TO HM TREASURY

I wish to comment on the consultation ‘Restricting non-resident’s entitlement to the personal allowance.

The removal of the UK personal allowance against tax would seriously reduce the income of many British Citizens and families in the EU. It would further increase the difficulties of completing any tax returns.

The matters raised under Q5 are too difficult and cumbersome.

I strongly agree that the suggestion should not apply to British citizens with strong economic ties to the UK (Q 5.1)

Question 6.1 I agree that it would be simpler to set a de-minimis limit of UK income. I would be in favour of setting this around £50,000.

Question 6.2 – For those who are required by law to have pensions taxed in the UK. It would be far too onerous a step to remove the personal allowance.

Question 6.3 – Many people on low incomes derived from the UK could be trapped into very heavy and onerous tax bills by this suggestion.

The situation could well become intolerable for some British Citizens who have taken advantage of the EU Right of freedom of movement to dwell in France.

I appeal to you to drop the concept of restriction of the personal allowance for non-residents.

END

Dear Suzanne ,

I have below drafted of letter to send to HMRC. It is difficult because I know this can be picked up in other States of the EU and one size does not fit all. It us also extremely valuable if people can express their own feelings.

nonresidentspersonalallowanceconsultation@hmtreasury.gsi.gov.uk

TO HM TREASURY

.

Subject – on the proposal to Restrict the Personal Allowances on UK sourced income for expatriates. Starred * entries can be omitted*

Dear Sir/Madam

My name is …………………. Address …………….

*Age……………….

*I receive a UK sourced income as follows from…………….

*My tax number and/or NI number is…….

I wish to comment on the consultation ‘Restricting non-resident’s entitlement to the personal allowance’.

Dear Sir/Madam,

The removal of the UK personal allowance against tax would seriously reduce the income of many British Citizens in the EU. It would further increase the difficulties of completing any tax return. The matters raised under Q 5. & Q 6.1 are too difficult – too bureaucratic and cumbersome to consider.

I strongly agree that the suggestion should not apply to British citizens with strong economic ties to the UK (Q 5.1)

Question 6.2 – For those who are required by law to have pensions taxed in the UK. It would be far too onerous a step to remove the personal allowance.

Question 6.3 – Many people on low incomes derived from the UK could be trapped into very heavy and onerous tax bills by this suggestion.

The situation could well become intolerable for some British Citizens who have taken advantage of the EU Right of freedom of movement to dwell in France.

I appeal to you to drop the concept of restriction of the personal allowance for non-residents.

Signed ……………..

The background to this issue is greatly expanded at

www.lefourquet.net/90Cdraft.doc

There, in that link, you may well find ideas to expand on your reply to HMRC.

Brian - thank you for the further information - as you are highlighting even more reason why people should be interested! I suggest something simple just to oppose the removal of the tax bands. My concern is for the people on low incomes. My thoughts - why couldn't they just allow personal allowances for people with UK income under 50k sterling?

Dear Suzanne, Thank you for your supportive comments - It seems that i must try to compose a letter which anyone may modify and use. One has until October to Respond and I do want to be sure that I leave no room for error. It is astonishing how few people grasp the essential nature of this issue. This is partly due to the complexity of tax law.

Those who are at the moment 'Not Taxable' in the UK (because their income is below £10,000) and have been told by the Inland Revenue that they have no need to complete tax returns, would probably find that they will be tax payers. The banks are a problem --- although it is possible to get interest paid gross which can be reported to France and avoids UK tax - various banks will not do this which forces the recipient into paying UK tax. Dividends (for those who have such) are taxable at various rates.

I would also observe that some people who are resident in France earn income by working for organizations in the UK. For example someone who is an early retiree who marks exam papers for UK exam boards. Under these proposals every £1000 could be reduced to £800. If the 10% tax band were implemented for low income persons it would be £900. My information so far suggests it is the 20% tax level which would be involved.

I shall do what I can to produce a sensible letter for sending the to HMRC.

Concerning Registration for Voting - Yes it is indeed very easy now.

This whole matter was raised with me by a tax consultant in the UK. It seems that some fuss is being raised amongst tax consultants in the UK over the implications of these proposed changes.

Also Brian - on the back of your message - I've just re-registered to vote as an overseas voter. For anyone else wanting to do it but thinking it's a hassle, it was really simple. I did it in less than 3 minutes. You need your passport, your last UK address and the month/year when you left and your National Insurance No. You can also ask for your postal votes to be emailed to you too which should hopefully be quicker than the postal route. (last time I was overseas registered the postal cards came too late to return the vote so hopefully this has now been rectified).

Also worth noting up front that people might be UK resident right now but in the future they may become NON UK resident so should still send a response. I know u put this at the bottom but your first sentence - 'This concerns you if you are not resident for tax purposes in the UK and …..' may have put people off reading further and it looks like support is needed for this to protect the personal allowances on UK income.

Hi Brian

Thanks for highlighting this and I'm sure it would affect many SFNers. If you would like to knock up a quick draft response for people to copy and send to the email link I am sure you would get lots of members pinging emails off to the UK gov on this. Is it something you could do for us?

Thanks

Suz