Changes to the personal allowance for non residents

The UK personal allowance (currently £6,475 for most people) exempts a specific amount of income from the charge to income tax. Non UK residents are still charged to UK tax on UK income and therefore being entitled to claim the UK personal allowance can be very beneficial. Where non residents own UK property for instance, the personal allowance will be offset against the UK rental profits and may well eliminate any potential UK income tax liability (particularly where the property is owned jointly). There are a variety of cases where anyone who's non resident could claim the UK personal allowance. In the main anyone who's non resident could traditionally claim the personal allowance if they fall within one of the following categories:

A Commonwealth citizen (which includes a British citizen).

A national of any European Economic Area (EEA) state, that is: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, United Kingdom and also, for tax years from 2004-05 onwards, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia

A person who is or has been employed in the service of the Crown.

A person who is employed in the service of any United Kingdom missionary society.

A person who is employed in the service of any territory under the protection of Her Majesty.

A person who is resident in the Isle of Man or the Channel Islands.

Persons who have previously resided within the United Kingdom and are resident abroad for the sake of their health or that of any member of their family resident with them.

A widow whose late husband, or a widower whose late wife, was in the service of the Crown.

They qualify under the terms of a double tax treaty However, in the 2009 Budget the Chancellor announced that the first category (ie 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 Commonwealth citizen. The withdrawal will apply from 6 April 2010 and will apply to:

basic and age-related personal allowances,

married couples' allowance,

blind person's allowance and

relief for life assurance 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 qualify under one of the other categories. 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 live in countries that don't have a tax treaty with the UK such as:

The Bahamas;

Cameroon;

Costa Rica

Cook Islands;

Dominica;

Maldives;

Mozambique;

Nauru;

Niue;

St Kitts & Nevis

St Lucia;

St Vincent & the Grenadines;

Samoa;

Tanzania;

Tonga;

Turks & Caicos Islands

Vanuatu. 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.