Is it worthwhile claiming the personal allowance as a non resident?
The ability of non residents to claim the personal allowance will be significantly reduced as from April 2010. However, even where it can still be claimed is it necessarily worth claiming it?In this article we look at why non residents may not want to claim the personal allowance anyway.
Before April 2010 someone who is a British or Commonwealth citizen or who is a resident of a relevant treaty country can claim the UK personal allowance.
This is currently worth £6,475 per person. The personal allowance provides for an exemption from tax on income that it covers. In the case of a couple, this can therefore provide for UK income of around £12,950 to be exempt from UK income tax.
However, in the 2009 Budget the Chancellor announced that claiming personal allowances solely by being a Commonwealth citizen was not compliant with the Human Rights Act.
They will therefore include a provision in the 2009 Finance Act to withdraw the entitlement for non-resident individuals who currently qualify for UK personal allowances and reliefs from income tax solely by virtue of being a British or Commonwealth citizen. The withdrawal will apply from 6 April 2010 and will apply to:
There still though a number of cases when you can still claim the personal allowances as a non resident. The main one is that you qualify under the terms of a double tax treaty.
What impact will this change have?
It will only be a cause for concern if you're currently a commonwealth citizen, with UK income who does not otherwise qualify.
In particular most double tax treaties will provide for a UK personal allowance if you're treaty resident abroad.
It will therefore mainly effect UK emigrants who are non EEA nationals and who live in countries that don't have a tax treaty with the UK such as:
Even if you are entitled to claim the UK personal allowance you should in any case consider whether it's worthwhile claiming it. For non residents it's generally worth tax savings of around £1,300.
However to take advantage of this you would need to claim the personal allowance in your UK tax return. This would therefore be a claim just like all other claims and could necessitate a review of your non residence status. If you have limited UK income in some cases it may simply be preferred not to claim the personal allowance and suffer the 20% income tax.
Even if your UK income is subject to basic rate tax at source it is questionable whether it's always worthwhile claiming the personal allowance.
If a claim is made this will be dealt with by the Centre for Non Residents. They may then look to consider your residence status in detail to assess whether you are truly non resident. This could prove an inconvenience and the Revenue may also be bound under the terms of an exchange of information treaty to provide details they discover to the overseas tax authorities.
Many non residents will prefer the additional privacy and reduced disclosure that goes with not claiming the personal allowance.
Therefore even if you do have income that is subject to UK tax deducted at source, you should think carefully as to whether to claim the personal allowance.
About the Author
The Author of this article/answer is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.
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