A little-noticed passage contained in the more than 100 pages of documents issued last Wednesday in connection with the Budget reveals that, in order to “ensure the UK personal allowance remains well targeted", the Government "intends to consult on whether and how the allowance could be restricted to UK residents and those living overseas who have strong economic connections in the UK, as is the case in many other countries, including most of the EU".
The passage was flagged up on a number of websites read by expats in the days following Osborne's Budget speech.
Because the Government has said it plans to consult on the matter before going ahead with any “restriction” on the personal allowance, it is difficult to say at this point, however, how it will affect individuals, some experts point out.
One of them is John Cassidy, a partner in the national tax investigations and dispute resolution team of Crowe Clark Whitehill in London, who says it is "way too early in the process to speculate on what may or may not happen as a result of a future review, when no details or proposals are known yet".
“The Chancellor announced an intention to consult," he adds. "When that consultation is issued, that may well be the time to comment, lobby and shout very loudly. But until then, nothing is really known, and there are simply too many grey areas, such as what is meant by the term ‘economic connections’.”
Keeping an eye out
Nevertheless, given that the basic personal allowance rate for the 2014/15 tax year the level is a not-insignificant £10,000 (for a single person), expatriates and their advisers are expected to keep an eye on this proposal – along with accepting that keeping a close eye on the UK Government going forward has become more important than ever before, says Christopher Lean, a Prague-based international tax and pension specialist with the OpesFidelio advisory network.
"It is becoming clear that offshore IFAs are going to have to be really up to speed with what is being proposed in the UK,” Lean adds. “Tax advice is really moving to the fore."
Neil Chadwick, technical manager of RL360°, thinks those with UK tax obligations who live overseas needn’t worry, at least based on what was little was said in the Budget.
"Unless you live in Dubai or another tax-free jurisdiction, then I don’t see it as having too much of an impact,” he said. “The UK has a large number of double taxation agreements, meaning that most individuals who may suffer tax in the UK as a result of the allowance being withdrawn or restricted should be able to get a credit for the tax paid in their country of residence, to avoid their income being taxed twice."
The Isle of Man removed its non-residents’ allowances a number of years ago, Chadwick, who lives there, added.
To see the passage in the Budget which refers to the plan to possibly introduce restrictions on the personal allowances of UK taxpayers who live overseas and lack "strong economic connections" to the UK, click here.
