Expat income threatened by UK Treasury tax plan

[K2]

Relocate Magazine - Expat income threatened by Treasury tax plan

One to watch out for ... unwelcome to say the least.

[Coolhand]

Read the full paper https://www.gov.uk/government/consul...onal-allowance

It doesn't seem too bad.

[LivinLOS]

I'm a bit surprised, I thought in the UK you also pay tax on income, i.e. from rentals ... how does this now suddenly impact so many landlords living abroad?

Else I misunderstood the quoted links, it was a lot to read ..

Because the UK give a tax free allowance, currently about 10k, so as long as your rental returns are under that you pay nothing, or if they are over its obviously lower in the income tabling for tax rates.

In doing this many landlords will have a far higher tax burden.

[Geespot]

Because the UK give a tax free allowance, currently about 10k, so as long as your rental returns are under that you pay nothing, or if they are over its obviously lower in the income tabling for tax rates.

In doing this many landlords will have a far higher tax burden.

I would imagine with no personal allowance and even paying the lower tax rate this hugely wipes out any expected margin on rental. In saying that all the costs related to managing and maintaining the property can probably be set off but the big downside I would guess if mortgaged the capital repayments wont be allowable but mortgage interest will be?

[Steve@thaib]

I would imagine with no personal allowance and even paying the lower tax rate this hugely wipes out any expected margin on rental. In saying that all the costs related to managing and maintaining the property can probably be set off but the big downside I would guess if mortgaged the capital repayments wont be allowable but mortgage interest will be?

You are correct, any capital introduced isn't allowable but any interest is.

I can sort of see where they are coming from with this, the tax free allowance has been rising steadily over the last few years and was designed to help people at the lower paid end of the jobs market hang on to more of their wages. For those who don't really need it it's a bonus.

All it would do is bring the first £10500 into the tax equation so instead of being tax free it would be taxable. It would be a kick in the pants to many, but they are not going to lose £10500 a year, they are just going to have to pay tax on their first £10500 at their standard rate. A basic rate tax payer ( 20% ) in that situation would have to pay £2100.

If your property portfolio currently brings in £30k profit your tax burden at the moment would be £3900 ( £30k - £10.5k x 20% ), if this is adopted then the tax burden would rise to £6000. Enough to get your attention but not really enough to sink you I think.

Not that I'm an accountant, by the way.

[K2]

But still £2k is quite a night out!

[Dodger]

Sorry K2 I'm getting confused who is 2K???

[davis121]

Looks like there still may be a few exceptions and ways round it...also seems that the earliest it will come into effect is Budget 2015 or even 2016...

https://www.gov.uk/government/consul...onal-allowance

Many countries, particularly Member States of the EU, incorporate a test into their tax legislation to distinguish which non-residents should retain entitlement to equivalents to the UK Personal Allowance.European law considers that residence can be a proxy for nationality, and that in some situations discrimination on the grounds of residence can be a form of disguised discrimination. European law does not however require that non-residents receive the same tax treatment as residents. The European Court of Justice has held on a number of occasions that Member States granting tax-advantages to residents is not, as a rule, discriminatory, having regard to the objective differences between the situations of residents and non-residents.

However, the Court has found that there can be discrimination between residents and non-residents if, notwithstanding their residence in different Member States, taxpayers are in a comparable situation.
A common example of where a non-resident is in a comparable situation to a resident is where that individual’s main source of income is from employment which they undertake in a different state to their state of residence. Other situations include an individual whose income is dependent upon property which is not in their country of residence or some situations where the individual has a very low worldwide income.
Within this legal framework twenty EU Member States, including Denmark and Germany, have a form of restriction on non-residents’ entitlement to tax free income based upon a test, this is also used outside the EU in Canada. There are a number of tests used. Some are linked to an individual having a home in the country (the UK already incorporates a similar provision in its Statutory Residence Test). The most widely used test compares non-residents to residents on the basis of where the overwhelming portion of their income is located.

The most common way to test which non-resident individuals are in comparable situations to residents is to consider the percentage of the individual’s worldwide income which arises in that country. This can be considered to measure economic connection to a country as an alternative to tax residence. The value of this percentage in other countries is almost always either 75 or 90 per cent of an individual’s worldwide income. Those non-residents with more than the given percentage (75 or 90 per cent) of their income in a country ‘pass’ the test and are eligible for an equivalent of the UK Personal Allowance.

The government consider this approach to be the most effective, linking entitlement to economic connection to the UK and to balance simplicity and fairness. However, the alternatives used elsewhere are also explored below.