Non-residents claiming personal allowances
An interesting consultation document has been issued by HM Treasury which looks at the possible restriction of the UK personal allowance entitlement for non-residents. Currently, many non-residents with taxable income arising from the UK can benefit from the personal allowance.
The personal allowance has increased significantly over recent years and is currently £10,000. The increase in the personal allowance was one of the main policies of the new coalition government when it came into office in May 2010. The allowance is set to increase further to £10,500 from April 2015.
Currently, the personal allowance is available to an individual who is UK Resident, or where the individual, at any time in the tax year:
- is a national of a European Economic Area state
- is resident in the Isle of Man or Channel Islands
- has previously resided in the UK but lives abroad for the sake of their own health or that of a member of their family who is resident with them
- is a person who is or has been employed in the service of the Crown
- is employed in the service of any territory under Her Majesty’s protection
- is employed in the service of a missionary society
- is a person whose late spouse/civil partner was employed in the service of the Crown.
Interestingly, many other countries, including the US, Australia, Canada and most of the EU, restrict non-residents’ entitlement to their equivalents to the UK personal allowance.
In its consultation paper, the Treasury explores the case for restricting the entitlement of non-residents to the UK personal allowance by looking at the UK tax benefit that individuals with limited economic ties to the UK can secure and explores the different tax outcomes that can result from the same economic activity. The consultation which is open for comment until 9 October 2015 also asks for readers’ views on a possible model for restricting entitlement to the UK Personal Allowance for non-residents.
HMRC estimates allowing non-residents to claim the personal allowance costs the exchequer some £400m per year.