Thousands of UK nationals who are living overseas and are regarded as non-resident in the UK for the whole of a UK tax year could lose their entitlement to the UK personal allowance if we have a hard Brexit, as they would no longer be an EU/EEA national
Robert Salter, a specialist in expatriate and employment taxes at Blick Rothenberg said, 'At the moment UK nationals who are non-resident in the UK are entitled to the personal allowance, but is this about to change?'
He added, 'The entitlement to personal allowances for UK citizens who are non-resident in the UK actually arises specifically from their status as EU/EEA nationals. This position is laid down in UK tax legislation, which was introduced in 2007.'
'However, if we have a hard Brexit, UK nationals who are living overseas and are regarded as non-resident in the UK for the whole of a UK tax year may lose their entitlement to the personal allowance.'
Salter siad, 'For the current tax year (2019/20), the personal allowance of £12,500 is available for such individuals to offset against UK sourced income which would otherwise be UK taxable - e.g. UK letting income or UK Government Service-related pension income. If the personal allowance were to be removed for such individuals, it would result in income automatically being subject to UK tax at a rate of at least 20%.'
He added, 'Such a change following a hard Brexit may well reduce the net income of many UK nationals living overseas (e.g. in retirement) as well as requiring many more UK nationals overseas to file an annual UK tax return each year, because UK taxable income might no longer be covered by the annual personal allowance.'
'Those with 'Government incomes' like ex-civil servants, teachers and NHS employees could be particularly impacted on the basis that such Government Service-related pensions are usually only taxable in the UK in accordance with international agreements and the removal of the personal allowance would therefore be an 'absolute additional tax charge' on such individuals.'
He added, 'The Government may change the law, so that British nationals who are non-resident in the UK in a tax year retain their entitlement to the personal allowance. However, it is worth noting that at the present time, no decision to this effect appears to have been made by the Government or either Boris Johnson or Jeremy Hunt.'
'The Government could as a 'tax saving' measure, choose to remove the entitlement to UK personal allowances for all non-resident individuals, regardless of their nationality.'
For further information, please contact Robert Salter