Personal tax allowance for non-UK residents to disappear from April 2010?

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Hi

I have been doing some research and it appears that the personal tax allowance for non-UK residents will be removed from April 2010.

I can't be certain of what the overall impact to Brits living in Malaysia will be, but one example of how this will impact is if you retain a home in the UK that you are planning to rent out whilst staying in Malaysia.

An example of this:

You have a property in the UK (a second home)
You rent the property out

In most situations 20% is deducted at source by the letting agent, and then a further 10% for your letting agent fees. This is 30% deducted up front. Ordinarily you would be able to use your tax allowance to reclaim the tax back, the only downside to this is that the government holds your money (without interest).

Now it appears that with the removal of the personal tax allowance you have to bite the bullet! Rent out and lost between 20% and 30% (if you use an agent)

I thought I'd just highlight this, anyone that can elaborate on this?

http://www.ukbudget.com/UKBudget2009/individuals/Budget09-individuals-withdrawal-of-uk-tax-allowances-for-non-UK-residents.cfm

 

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Good catch Benedict!

Here is the official promulgated HM proposal dated 22 April 2009:

http://www.hmrc.gov.uk/budget2009/bn54.pdf

As can be seen it will not affect the majority of UK National non-residents...only ones like me who have become Commonwealth Citizens (Canada) and others that live where there is no tax treaty. Malaysia is not included, so all MM2H'r non-resident UK can relax.

Canada has a double taxation agreement so any income (i.e my 2 UK pensions) are declared to both countries and taxed in Canada. The UK Govt. long ago asked me to stop declaring unless my UK income was above an exceptionally (for me) large amount. I haven't been to UK since 1990, and for non-resident status, I left in 1974.

All UK does is ask me to declare I'm still alive. How I can do that  if I die defeats me...but Bureaucracy...what can you do?

The above is my opinion but others, with better info, are welcome to comment as this could be bad news if I'm wrong.

David

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hi, Benedict,

Welcome to the site and many thanks for the post.

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All UK does is ask me to declare I'm still alive. How I can do that  if I die defeats me...
David

 

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hi,

It's more than their jobs are worth to let you R.I.P   

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I'm a bit out of touch with UK matters these days.  Did it go through?

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I've traced this back from the original budget note. It was in fact enacted as part of the 2009 Finance Act (the actual bill passed by parliament by which a budget is implemented).

It's on page 76, but it's incomprehensible to the general public.
http://www.legislation.gov.uk/ukpga/2009/10/pdfs/ukpga_20090010_en.pdf

The laymans version of it is here:

"Finance Act 2009 Schedule 1 contains provisions abolishing personal reliefs for non-UK residents, which affects individuals who have entitlement to allowances or reliefs solely because they are Commonwealth citizens.

Most non-resident Commonwealth citizens will still be able to claim the allowances or reliefs by other means, for example double taxation treaties (DTT), but citizens of a number of countries will be affected (eg, the Bahamas – a full list of countries is included in the Explanatory Memorandum to the Finance Act). Generally, this is because the UK has no current DTT with the Commonwealth country concerned."

Full Text:
http://www.taxadvisermagazine.com/ta/news/abolition-personal-allowances-non-residents-1014641

So basically, it may or may not affect us depending upon the conditions of the Double Taxation Treaty between the UK and Malaysia.

UK/Malaysia DTT:
http://www.hmrc.gov.uk/international/malaysia.pdf

The relevant section (Page 36) seems to mirror the Singapore DTT mentioned in the above article.

"Nothing in this Article shall be construed as obliging:

(a) a Contracting State to grant to individuals who are resident of the other Contracting State any personal allowances, reliefs and reductions for tax purposes on account of civil status or family responsibilities which it grants to its own residents;

(b) Malaysia to grant to nationals of the United Kingdom not resident in Malaysia those personal allowance, reliefs and reductions for tax purposes which are by law available on the date of signature of this Agreement only to nationals of Malaysia who are not resident in Malaysia."

My head hurts...

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Thanks Andy.  I've read through that twice and still don't quite get it.  I'll have another cup of coffee and try again.  I'm trying to work out if, in the remote possibility that I will eventually get my UK state pension (they've already moved the goalposts twice), I will get it tax-free - the state pension being under the Personal Allowance, but will I get the Personal Allowance?  Though I imagine once I've been in Penang for more than half a Malaysian tax-year and can get tax residency certificate, that will allow me to have the UK state pension gross under the DTT.  Just curious to know.

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Well, I applied to HMRC for an "NT" tax code, explaining to HMRC that I was no longer resident or working in the UK. After a lot of umming and arrring, they gave me it. So the income that I am paid has no tax deducted at source.

I then do an Isle of Man tax return in October of each year and pay the tax due on my income the following January. Since then, I've received new "NT" tax codes each April from HMRC as nothing has changed (i.e. still non-resident and still not working in the UK).

My expectation is that if you went down the same route you would get the same treatment.

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I'm trying to work out if, in the remote possibility that I will eventually get my UK state pension (they've already moved the goalposts twice), I will get it tax-free - the state pension being under the Personal Allowance, but will I get the Personal Allowance?  Though I imagine once I've been in Penang for more than half a Malaysian tax-year and can get tax residency certificate, that will allow me to have the UK state pension gross under the DTT.

Difficult to say, having read all of this, I'm still unclear. Maybe it would be better to ask if any other members the MM2H Forum are recieving a UK state pension and if so are 1). Are they paid gross or not  2). If they are, how did they justify it.

I've also re-read my copy of "Non-Resident & Offshore Tax Planning" 2011 Edition by Lee Hadnum. To summarise:

"If you are a UK expat pensioner who is receiving a UK pension you would usually be subject to UK income tax on your UK pension.

However, this is where double tax treaties could come to the rescue. Certain double tax treaties allow UK tax to be avoided and
instead allow only the overseas country to levy tax. For example, the UK-Cyprus treaty grants sole taxing rights over UK pensions to
Cyprus."

So back to the UK / Malaysia Double Tax Treaty again (http://www.hmrc.gov.uk/international/malaysia.pdf).

On page 28 of the DTT in "Ariticle 19 - Pensions and Annuities", it states that:

"(1) Subject to the provisions of paragraph (2) of Article 20 of this Agreement, pensions and other similar remuneration paid in consideration of past employment to a resident of a Contracting State and any annuity paid to such a resident shall be taxable only in that State."

My interpretation of the above is "The right to tax pensions goes to the state where the employment was undertaken from which the pension arose". In the case of a UK state pension or a UK company pension, then taxing rights would be in the UK.

Happy to be proven wrong, but I think that is how to translate it. 

My Ears are beginning to bleed...   

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Complicated lah.  Cheers Andy.

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If you take up residence in Cyprus, you can opt to become a taxpayer in that country. You will receive a personal allowance of 19800 euros and start paying tax at 20%. In Malaysia the treaty is not quite so generous. I receive the state pension as well as an armed forces pension. Both of these are subject to UK tax even though I registered as a Malaysian tax payer. It has taken 3 years of forms, letters and phone calls to sort this out and in that time I paid no tax. Everyone that I contacted at the tax offices assured me that I would pay no tax on my pensions. Eventually, someone "from our technical department" sorted out the rules and now I pay the tax (after deuction of personal allowance of just under 10k). I hope this clears up any misunderstandings.

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Thanks baldeagle, that hits the nail on the head I think, and sounds like you still get the UK personal allowance.  That's what I wanted to hear.

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Baldeagle - Is it possible for you to provide a 'Road Map' to resolve these problems?

Is there any particular part of HMRC (Phone number, fax number, department, address, etc.) that you felt helped most to give you the outcome you needed?

The reason that I say this is that the vast majority of people that I spoke to at HMRC were helpful, but clueless about the particular circumstances of non-residents. Even the Centre for non-Residents is more used to those who are non-UK citizens who are either coming into the country or have touch-points (such as property or business) which bring them into contact with HMRC even though they are residents of other countries.

The default position of these helpful, but clueless staff at HMRC seems to be that if you have income that is somehow related to the UK (in respect of pensions, UK bank accounts, UK property income, UK dividends, etc.), then their default position is that is liable to UK taxation at the appropriate rate regardless of all else.

Now, while this might be true in many circumstances, it is not true in all circumstances (as we know to our cost), however it is difficult to get a different answer from these people as they are not sufficiently well versed in the appropriate legislation and things like double-tax treaties.

I have so far managed to navigate through these issues as I had engaged a tax specialist who understood the exact situation I was entering into (namely moving from the UK to the Isle of Man), which was fairly common for her Leeds based business. However, I expect to encounter at least some of the same problems as yourself when making the larger move from the Isle of Man to Penang.

Any advice, greatfully recieved.

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 Hi KLF

I'm currently in Oz so am away from all my bits & bobs. Will post all info on my return.