Non-residents keep allowances for now but will they pay more UK tax in the long run?

Wed 03 Dec 2014

The Chancellor has recognised that the proposed abolition of the UK personal allowance to non-UK residents is complex and the Government will not proceed without further consultation.  This does not mean that the topic will not be revisited after the General Election but no changes will take effect before April 2017.

The purposes of withdrawing allowances was not necessarily to increase the tax paid by non-residents, who usually pay tax in their country of residence instead of the UK. Instead the measure was meant to align the UK more closely with overseas jurisdictions and ensure that UK income is taxed in the UK.

The UK’s personal allowance from April 2015 will be £10,600 which is much more generous than many other countries.  The proposed withdrawal of the relief would have meant that more UK tax would have been paid by non-residents even if their overall worldwide tax liability would have broadly remained the same thanks to double tax relief.

In the days leading up to the Autumn Statement, HMRC announced how non-residents will be liable to UK capital gains tax (up to 28% for individuals) on UK residential property from April 2015 with only restricted availability of the valuable relief for principal residences.  So non-residents owning UK homes are likely to pay more tax in the UK going forward, whereas investors in other assets may not.