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UK Non-Resident Personal Allowances

Despite press reports to the contrary, the proposed removal of the UK personal tax allowance to non-residents is unlikely to have any significant impact on most expats living in France.

In recent weeks there have been reports in a leading English language newspaper in France concerning the proposed abolition of UK personal allowances to expatriates. A number of you have contacted us concerned about what you have read.

The background to this story is that in the March 2014 Budget the UK Government announced that it was to undertake a review of whether there should be restrictions on the income tax personal allowance for non-residents.

The level of this allowance is currently £10,000 per year, which will rise to £10,500 in April 2015. The allowance has risen by over 60% over the past 4 years.

Expats living in France are currently allowed to set off their liability to income tax in the UK against this allowance, provided the income is taxable in the UK.

The government have yet to make a final decision on the matter, but they have issued a consultation paper that provides an insight into their thinking.

State Pensions

The largest group of expatriates who might be expected to be affected by this reform are those on a pension income, the vast majority of expatriates living abroad.

However, state pensions are already taxed entirely in France, and expatriates in France receive no UK personal allowance against such income.

As the government states in the consultation paper, "Most UK national pensioners living overseas would not be affected by any restriction on non-residents entitlement to the Personal Allowance."

Accordingly, all UK State Pensions are outside the scope of the review.

Government Service Pensions

For those on a government service pension, whose pension income is taxed in the UK, the government are proposing that they will continue to receive the personal allowance.

They state that, "The government is concerned that individuals, like those in receipt of government service pensions, who are not eligible for double taxation relief, would be disproportionately affected by the removal of the UK Personal Allowance."

As a result, "The government does not intend to raise taxes on vulnerable groups or in situations where the UK is the principal taxing authority and an individual has no recourse to relief as a result of the UK having sole taxing rights under a tax treaty."

'Economic Connection'

Indeed, the definition of those who will be unaffected is broader, for the consultation paper also proposes that others who have a "strong economic connection" with the UK would continue to be entitled to the personal allowance.

The adoption of such an approach is considered necessary in order to avoid infringing European regulations and tax treaty obligations on discrimination between residents and non-residents who may be in comparable circumstances.

The paper discusses just what may be considered to be a 'strong economic connection', and comes down in favour of a test based on the percentage of total income that arises in the UK.

Although the paper does not propose a threshold, it suggests that it might be at either 75% or 90% of total income.

Accordingly, whether or not you are on a pension income, if the vast majority of your income comes from the UK, you will still be entitled to the personal allowance.

This would include those who retain rental property in the UK, which is taxable in the UK, with a tax credit granted in France on such income.

Paulette Peterson, of expatriate tax advisors PetersonSims says that, "Some of the reports I have read about this matter are unecessarily alarmist because the vast majority of expatriates in France will be unaffected by the changes.

The main losers are likely to be those non residents whose main economic activities are outside the UK, via employment or self-employment abroad; if these non residents have UK investment income, such as rental income, they will lose the personal allowance and will pay UK tax on this income.

Generally, non- working pensioners in receipt of UK sourced pensions will suffer no adverse consequences and will continue to benefit from the personal allowance which can be set against their UK rental income."


The government are proposing to complete consultation on the issue by mid October, and to implement the changes from January 2015.

We will publish further information when the final proposals are available.

Related Reading:

This article was featured in our Newsletter dated 03/09/2014

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