Tax risk for ex pats

The government is to consult on plans outlined in the Budget to tighten up the rules regarding the use of the UK personal allowance by non-residents, which could have implications for expats living overseas who own UK rental properties say Harris & Co accountants Northampton

Chancellor George Osborne said the UK ‘now has one of the most generous personal allowances in the world’ and the government would be looking at whether or how it could be restricted to ‘UK residents and those living overseas who have strong economic connections in the UK’.

Osborne said the move would bring the UK’s tax regime in line with ‘many other countries, including most of the EU.’

Peter Goodman, partner at Wilkins Kennedy, said:

‘This will be deeply unsettling for many overseas landlords and others that have rental property investments in the UK. Losing a tax free allowance worth up to £21,000 per couple, for jointly owned property will potentially mean a tax charge of £4,200.’

No details have been released yet as to when any consultation will take place. In its Budget analysis Smith & Williamson said:

‘As always with consultations, it is only when the consultation document is released that we will be able to see the specific detail and how it will impact specific taxpayers. For example, it will be interesting to see how “strong economic connections” is defined.’

Wilkins Kennedy warned that the government’s plans to withdraw the personal allowance from non-residents was at odds with the Chancellor’s message to overseas investors that the Budget showed the UK is ‘open for business’.

Goodman said:

‘As it proceeds with its consultation, the government will need to be very careful not to create the impression that international investors are not welcome here. Proving a “strong economic connection to the UK” could be a very difficult test to apply. The risk is that this is yet another announcement that chips away at the UK’s reputation as a friendly environment for overseas investors.’

From 6 April 2010 the government withdrew personal allowances for non-resident individuals who received them solely because of citizenship of a Commonwealth country.

This year’s Budget also contained measures to charge CGT on future gains made by non-residents disposing of UK residential property. A consultation on the CGT issue is also due shortly, with the changes taking effect from April 2015.