The UK has a progressive tax system and so the rate of tax payable increases as income increases. All UK residents have a Personal Allowance which means that the first part of their income is free from UK income tax. For the tax year 2020/21 this is £12,500 but you need to be aware of a change in the system.
The Personal Allowance is also available to people who are not resident in the UK provided they are a citizen of a European Economic Area (EEA) country, which includes all British passport-holders. It also applies to anyone who has worked for the UK government at any time during the relevant tax year.
There is however a change in the way that non-residents, expatriates, claim this allowance which has not been widely publicised so if you are UK non-resident for tax purposes and have income arising in the UK, such as rental income, you need to read on.
In the past the Personal Allowance was automatically applied, set against your UK income, but this is no longer the case. In order to claim the Personal Allowance you now have to complete and return a form at the end of each tax year in which you have UK income.
Links to the forms, plus the guidance notes are below for your convenience.
R43 completion guide: HMRC Form R43 – Guidance Notes 2020
The form should be returned to your usual tax office.
It appears that this is now being enforced as I have come across cases where people are being told that they are not eligible for the Personal Allowance even where their circumstances have not changed and it has been applied for many years.
If you have UK income and are eligible for a Personal Allowance, I would suggest that it would be sensible to complete and return a form P43 to avoid any potential issues.
I write articles such as this one as part of the holistic personal financial planning service that I provide to expats. Should you have any queries on any other financial planning issues and require professional advice, please do not hesitate to contact me at email@example.com
Please take a look at the other useful articles on this website.
The information in this article is based on our understanding of current legislation and may be subject to change. No liability can be accepted for any change of interpretation or practice relating to any tax or legislative measure or the introduction of any new measures that may affect this information.
Article updated January 2021