At the present time everyone whether resident in the UK or living abroad benefits from the personal allowance, meaning that they can earn up to £10,000 a year in the UK before being liable to income tax, but under new Government proposals this is likely to change. This will affect anyone who receives an income from renting out a property whilst they are living overseas.
EU nationals and British expats are currently entitled to offset income earned in the UK against the £10,000 Personal Allowance in the same way as UK residents. The Chancellor of the Exchequer, George Osborne, first indicated an interest in curtailing the allowance in the March 2014 budget, but this was largely overlooked in the press due to the pension changes that grabbed the headlines.
For many people investment property is a way of planning for their retirement or of supplementing their income, but this potential change, coupled with the proposed changes to Capital Gains Tax relating to the sale of properties that are not a main residence (as mentioned in this post UK Budget 2014 ) will mean that property may be a far less attractive investment.
It is believed that this move could affect up to 400,000 people and raise an extra £400 million a year in tax. Those affected would include some 175,000 people who live abroad and earn an income from property in Britain. While some expats will be able to claim tax relief from their country of residence, those living in low-tax jurisdictions, such as the UAE, will pay more tax overall.
The consultation in respect of this proposal was opened by HMRC last month so it will be some time before we hear the outcome of this and any changes are confirmed and take effect. Even so, it is best to be warned as may affect people’s decision to move abroad or to purchase property in the UK as an investment. Other investments may be a better alternative for many from a tax point of view.
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