UK expats to pay tax on their rented houses back home

[3NUMBAS]

new law coming into force by the chancellor

http://www.telegraph.co.uk/news/uknews/immigration/11028013/Osbornes-plan-to-make-250000-migrant-workers-pay-tax.html

quote

Other groups to be hit are likely to include those in receipt of Government pensions, and British expats who receive income from rental properties in Britain. An expat couple with a rental income of £20,000 a year could be £4,000 a year worse off.

[3NUMBAS]

and quote ^^^^

The plans to deny the personal allowance to people who are non-resident for tax purposes – meaning they are in Britain for less than six months of the year – were first revealed in the March Budget. Developed plans have now been released for consultation.

In total, up to 400,000 people could be affected, saving the Exchequer £400 million a year.

[Basil B]

Do not forget you should be able to offset this against the tax you pay in Thailand under the double taxation agreements.

Seems the chancellor at last is cracking down on tax dodgers, not just the big ones like Starbucks and Amazon.

[partington]

Do not forget you should be able to offset this against the tax you pay in Thailand under the double taxation agreements.

Seems the chancellor at last is cracking down on tax dodgers, not just the big ones like Starbucks and Amazon.

If the tax legislation in Britain gives a personal allowance of £10,000 before tax needs to be paid, then people earning less than £10,000 a year are not tax dodgers.

How could you interpret this as evading tax? The tax is not owed. Simply baffling comment!

[Expattaff1308]

https://www.gov.uk/government/consultat ... -allowance Para 6.6 covers pensioners

https://www.gov.uk/government/consultat ... -residents

Edited August 12, 2014 by Expattaff1308

[Robroona]

The headline is somewhat misleading. I have 6 rented properties and pay tax on net earnings from all of them, have done for years

[rgs2001uk]

The headline is somewhat misleading. I have 6 rented properties and pay tax on net earnings from all of them, have done for years

Agreed, its hardly anything new.

[Bazle]

The headline is somewhat misleading. I have 6 rented properties and pay tax on net earnings from all of them, have done for years

The headline is somewhat misleading. I have 6 rented properties and pay tax on net earnings from all of them, have done for years

Agreed, its hardly anything new.

But it is!

Most likely, you have been able to set off the personal allowance against your net (after allowable expenses) rental income before tax was calculated on the remainder. These proposals MIGHT result in your not having a personal allowance.

HMRC's consultation document asks various questions and invites feedback.

Because the tax treaty between the UK and Thailand is so old, Brits living in Thailand are not in the same situation tax-wise as they would be living in most other countries. I am hoping that ThaiVisa or some other body will be submitting feedback to HMRC to draw HMRC's attention to the position. If not, Brits in Thailand could be in for a nasty shock.

[VBF]

The headline is somewhat misleading. I have 6 rented properties and pay tax on net earnings from all of them, have done for years

Agreed, its hardly anything new.

I disagree. It is new because, if you look at the linked article here: http://www.telegraph.co.uk/finance/personalfinance/expat-money/11027075/Expats-face-400-million-tax-raid.html it's the Personal Allowance that may change.

It says "Expats who rent out their homes in Britain will be stripped of the right to use the personal allowance, under a tax raid prepared by George Osborne."

In other words, at present, the FIRST £10,000 you receive from your rental income is not taxable - anything over that is taxable. Under these proposals, it will ALL be taxable.

Edited August 12, 2014 by VBF

[Bench499d]

Actually this is not going to "save" the Exchequer £400m, it's going to raise an EXTRA £400m some of which is coming from people who need it, like pensioners or others who just rent out their home when abroad, not your big shot foreign property investors who will not be paying any tax...

[jacky54]

So on any income from home, pensions/savings etc an expat will have to pay 20% tax? I think this will see quite a few going back home and costing the government quite a slice of the 400 million 'saving'. Not quite so bad if you are getting 20k rental on top of pensions, but if your pension is only 600 quid a month why should you have to pay 120 of that back in tax, day light robbery. There will be many who will try to get around this, leading to costs in tracking them down and prosecuting for 'fraud' that will eat into the savings as well.

[jacko45k]

I know quite a few people living here on retirement extensions who survive on a combination of State pension plus a Company Pension.

No rental income involved.

These people already pay UK tax, I guess because the pensions are paid in the UK and the sum total exceeds the annual allowance.

I am reading that the said allowance could become zero for those out of the UK more than 6 months, certainly nearly all those I know.

A potential loss of £40 pw or £170 a month for a single person.

Some are struggling now.

Am I getting anything wrong here?

Edited August 13, 2014 by jacko45k

[theoldgit]

So on any income from home, pensions/savings etc an expat will have to pay 20% tax? I think this will see quite a few going back home and costing the government quite a slice of the 400 million 'saving'. Not quite so bad if you are getting 20k rental on top of pensions, but if your pension is only 600 quid a month why should you have to pay 120 of that back in tax, day light robbery. There will be many who will try to get around this, leading to costs in tracking them down and prosecuting for 'fraud' that will eat into the savings as well.

You also need to bear in mind that people with two Government Pensions, NHS, Military, Police, Civil Servants and the like, already pay tax on the excess over their personal allowance over £10,000, £10,500 from 2015, as they are UK based pensions.

There is a double whammy for these people as whilst the personal allowance has been increased, with headline comments from Osborne, the rate at which the 40% rate kicks as been going down, dragging more and more tax payers into the 40% tax rate. So anybody already paying 40% on part of their pension income would pay 40% on £10,500, £4,200 extra tax, if this comes in.

These people are not tax avoiders and could not benefit from any double taxation agreements. Those affected will have to make some serious decisions if this comes in, they are losing £4,200 a year, suffer from frozen pensions, no free NHS, no winter fuel allowance and even no bus pass.

I think the number crunchers advising Osborne and his cohorts, will advise that it would be an own goal to remove the personal allowance for those in this position as would cost The Treasury more money if these people started returning to the UK in large numbers.

I do take comfort in the comment and links provided by Expattaff1308 which indicates that HMG accepts that people in this position could be adversely affected and it is not their intention to disproportionately hit them.

I'm not sure that Thaivisa.com would be lobbying HMG, but the discussion paper Expattaff has proved the link for does ask for comments, I will be doing so and would urge others to do the same.

[Eneukman]

I know quite a few people living here on retirement extensions who survive on a combination of State pension plus a Company Pension.

No rental income involved.

These people already pay UK tax, I guess because the pensions are paid in the UK and the sum total exceeds the annual allowance.

I am reading that the said allowance could become zero for those out of the UK more than 6 months, certainly nearly all those I know.

A potential loss of £40 pw or £170 a month for a single person.

Some are struggling now.

Am I getting anything wrong here?

No, I think you're spot on. I currently have a company pension and investment income on which I pay UK income tax. If implemented, the proposals would make me £2,000 worse off (more as the nil rate band increases over time) or about 9,000 baht per month.

It seems to me that the UK government is treating its ex-pats as 4th rate citizens. I cost the government zero in health costs with visits to the doctor (and potentially hospital) plus I won't get a free bus pass when I'm 60 next year. Then, when I qualify for the state pension, the amount paid will never increase.

Alan

[Baerboxer]

I know quite a few people living here on retirement extensions who survive on a combination of State pension plus a Company Pension.

No rental income involved.

These people already pay UK tax, I guess because the pensions are paid in the UK and the sum total exceeds the annual allowance.

I am reading that the said allowance could become zero for those out of the UK more than 6 months, certainly nearly all those I know.

A potential loss of £40 pw or £170 a month for a single person.

Some are struggling now.

Am I getting anything wrong here?

No, I think you're spot on. I currently have a company pension and investment income on which I pay UK income tax. If implemented, the proposals would make me £2,000 worse off (more as the nil rate band increases over time) or about 9,000 baht per month.

It seems to me that the UK government is treating its ex-pats as 4th rate citizens. I cost the government zero in health costs with visits to the doctor (and potentially hospital) plus I won't get a free bus pass when I'm 60 next year. Then, when I qualify for the state pension, the amount paid will never increase.

Alan

I agree Alan - the UK government doesn't see the expat community as anything like first class citizens.

By abolishing the personal allowance we will have to pay tax on all investment income, rental income and any other income such as pensions. Every penny will be subject to tax. If the Capital Gains tax rules are changed, we will have to pay CGT when we sell our home in the UK, even if it is our main residence.

Presumably we will still be able to claim tax relief on the expenses associated with renting out properties?

Are the rules around ISA's also going to be changed? Will we be stripped of those tax benefits too regardless of how long we've held the investment?

Are we still going to suffer the frozen state pension?

The current government are simply hitting anyone the see as soft targets and use the excuse of "well other countries do it". Yet the big boys will continue to find ways around this and be applauded by the same government for their "innovation".

[tboxcar]

I can't speak for the UK, but US Tax law and other countries is pretty simple, if you make money in a country, whether it's rental income, stock divend, work or whatever, then you have made income...and you MUST report that income (at least in the US) now there are certain expemptions and foreign tax credits that my negate the final tax that is owed, but's in the end it's pretty simple, you make money , YOU PAY TAX.....been that way for hundreds of years....I certally don't agree with it and that is why many lately have given up their citizenship to escape these tax burdens.

[Krataiboy]

Any news of progress on the proposal, announced some months ago by the British government, to allow Brits resident in non-EU countries to receive free treatment under the NHS without having to return to their homeland for six months to qualify?

Many of us old 'uns are taxed at source on their state and private pensions (if they are lucky enough to have one) and are too long in the tooth to obtain medical insurance for Thai hospitals. Under current rules, if we need surgery or other expensive treatment on the NHS we either have fly back and wait half a year - by which time we could be beyond medical help! - or bear the full cost.

We seem to be getting less and less for a lifetime of paying taxes and National Insurance contributions and I have a nasty suspicion that the plan to restore our NHS rights was just one of those pre-election kites that will never fly.

[Estrada]

I know quite a few people living here on retirement extensions who survive on a combination of State pension plus a Company Pension.

No rental income involved.

These people already pay UK tax, I guess because the pensions are paid in the UK and the sum total exceeds the annual allowance.

I am reading that the said allowance could become zero for those out of the UK more than 6 months, certainly nearly all those I know.

A potential loss of £40 pw or £170 a month for a single person.

Some are struggling now.

Am I getting anything wrong here?

The Government Consultation Paper on the proposal, says that it is not their intention to hit Pensioners who have no other source of income. However there is no good news allowing index linking on the UK Goverment Pension.

[peterb17]

I can't speak for the UK, but US Tax law and other countries is pretty simple, if you make money in a country, whether it's rental income, stock divend, work or whatever, then you have made income...and you MUST report that income (at least in the US) now there are certain expemptions and foreign tax credits that my negate the final tax that is owed, but's in the end it's pretty simple, you make money , YOU PAY TAX.....been that way for hundreds of years....I certally don't agree with it and that is why many lately have given up their citizenship to escape these tax burdens.

I am not sure you quite understand the implications of this proposal - my pensions and rental income from the UK are taxed at source- there is no escape from this- which is no problem.

However every single person in the UK is allowed to have a tax free allowance of £10000 - this allows those on low incomes - say a part time job - not to pay tax- which is a good thing.

This new proposal is to take away the tax free allowance if you do not reside in the UK- therefore you will pay tax on every penny.

The Treasury says it may gain £400 million- that is less than 4 days payment to the EU.

This could make a great deal of difference to those who are living abroad and are not millionaires.

I have absolutely no problem in paying my taxes - but this is just mean - to gain peanuts in the scheme of things in one of the richest countries in the world ( yes have just gone up to 4th wealthiest countries )

[delboy]

They are also considering a percentage test, by which your UK income would be calculated as a percentage of your global income. If it exceeds their limit (75% and 90% are two limits proposed) then you would qualify, under the "strong economic ties to the UK" rule, to have a personal allowance.

In section 6.6 (specifically for pensioners) they say

"Most UK national pensioners living overseas would not be affected by any restriction on non-residents entitlement to the Personal Allowance."

and

"The government does not intend to raise taxes on vulnerable groups or in situations where the UK is the principal taxing authority and an individual has no recourse to relief as a result of the UK having sole taxing rights under a tax treaty. If the government were to restrict non-residents’ entitlement to the Personal Allowance, it would intend this to apply to types of income which are taxable both in the UK and overseas (such as that from immovable property) but to retain the Personal Allowance on income that is taxable exclusively in the UK."

If, as been stated on Thaivisa, UK pensions (state and private) are not eligible to be taxed under the Thai tax system, then the UK personal allowance should continue.

This is encouraging, however, this is the UK government we are talking about, and if they can find a way to get the last drop of blood from us, they will.

[Brian Corrigan]

Lets hope that the following extract from the Governments paper is true:

The government does not intend to raise taxes on vulnerable groups or

in situations where the UK is the principal taxing authority and an

individual has no recourse to relief as a result of the UK having sole

taxing rights under a tax treaty. If the government were to restrict

non-residents’ entitlement to the Personal Allowance, it would intend

this to apply to types of income which are taxable both in the UK and

overseas (such as that from immovable property) but to retain the

Personal Allowance on income that is taxable exclusively in the UK.

My words:
The British state pension is exclusively taxable in the UK.

[joebrown]

I always understood the UK State Pension to be paid untaxed. It is only when combined /aggregated with other income and the total then exceeds one's personal Alllowance that tax becomes payable on the 'excess' over and above the Allowance.

Edited August 13, 2014 by joebrown

[alanrchase]

I always understood the UK State Pension to be paid untaxed. It is only when combined /aggregated with other income and the total then exceeds one's personal Alllowance that tax becomes payable on the 'excess' over and above the Allowance.

That is probably because as far as I know the UK state pension has always been less than the Personal Allowance.

[Bazle]

They are also considering a percentage test, by which your UK income would be calculated as a percentage of your global income. If it exceeds their limit (75% and 90% are two limits proposed) then you would qualify, under the "strong economic ties to the UK" rule, to have a personal allowance.

In section 6.6 (specifically for pensioners) they say

"Most UK national pensioners living overseas would not be affected by any restriction on non-residents entitlement to the Personal Allowance."

and

"The government does not intend to raise taxes on vulnerable groups or in situations where the UK is the principal taxing authority and an individual has no recourse to relief as a result of the UK having sole taxing rights under a tax treaty. If the government were to restrict non-residents’ entitlement to the Personal Allowance, it would intend this to apply to types of income which are taxable both in the UK and overseas (such as that from immovable property) but to retain the Personal Allowance on income that is taxable exclusively in the UK."

If, as been stated on Thaivisa, UK pensions (state and private) are not eligible to be taxed under the Thai tax system, then the UK personal allowance should continue.

This is encouraging, however, this is the UK government we are talking about, and if they can find a way to get the last drop of blood from us, they will.

MOST UK national pensioners would not be affected as they live in countries with which the UK has up to date double tax treaties. It will mean paying more tax in the UK but less tax to the overseas tax authority, so broadly neutral to the pensioner.

Lets hope that the following extract from the Governments paper is true:

The government does not intend to raise taxes on vulnerable groups or

in situations where the UK is the principal taxing authority and an

individual has no recourse to relief as a result of the UK having sole

taxing rights under a tax treaty. If the government were to restrict

non-residents’ entitlement to the Personal Allowance, it would intend

this to apply to types of income which are taxable both in the UK and

overseas (such as that from immovable property) but to retain the

Personal Allowance on income that is taxable exclusively in the UK.

The tax treaty between the UK and Thailand is ancient. There is no article dealing with pensions, and not even an "any other income" article.

My guess is that the vast majority of UK pensioners in Thailand are not paying Thai tax on their pensions. That might be because there is no liability, or because they have "forgotten" to inform the Thai tax authority of taxable income. As I understand it, the pension would be taxable in Thailand if taken into Thailand in the same year as it is earned. If a tax liability arises on this "remittance basis", the Thai tax should be reduced by (at least to some extent) the UK tax on the pension remitted to Thailand.

The words from the Consultative Document quoted above refer to " types of income which are taxable both in the UK and overseas" That word "taxable" needs to be clarified. The pension IS taxable in Thailand but only to the extent that it is remitted to Thailand. So do they mean "taxed" rather than "taxable"? If they do, the proposals shouldn't be too bad.

[theoldgit]

I always understood the UK State Pension to be paid untaxed. It is only when combined /aggregated with other income and the total then exceeds one's personal Alllowance that tax becomes payable on the 'excess' over and above the Allowance.

It's untaxed at source but it is taxable.

As alanrchase has pointed out, the State Pension is less than the Personal Allowance, so if that's your only income it will remain tax free. If you have other taxable income, like a private pension, then your Personal Allowance is reduced by the amount of your State Pension to allow the tax to be collected from the secondary source.

[SunsetT]

Do not forget you should be able to offset this against the tax you pay in Thailand under the double taxation agreements.

Seems the chancellor at last is cracking down on tax dodgers, not just the big ones like Starbucks and Amazon.

But has he cracked down on Starbucks and Amazon?

[thonglorjimmy]

I'm not sure that Thaivisa.com would be lobbying HMG, but the discussion paper Expattaff has proved the link for does ask for comments, I will be doing so and would urge others to do the same.

I've responded to the consultation exercise.

[awayego]

I know quite a few people living here on retirement extensions who survive on a combination of State pension plus a Company Pension.

No rental income involved.

These people already pay UK tax, I guess because the pensions are paid in the UK and the sum total exceeds the annual allowance.

I am reading that the said allowance could become zero for those out of the UK more than 6 months, certainly nearly all those I know.

A potential loss of £40 pw or £170 a month for a single person.

Some are struggling now.

Am I getting anything wrong here?

No, I think you're spot on. I currently have a company pension and investment income on which I pay UK income tax. If implemented, the proposals would make me £2,000 worse off (more as the nil rate band increases over time) or about 9,000 baht per month.

It seems to me that the UK government is treating its ex-pats as 4th rate citizens. I cost the government zero in health costs with visits to the doctor (and potentially hospital) plus I won't get a free bus pass when I'm 60 next year. Then, when I qualify for the state pension, the amount paid will never increase.

Alan

I agree Alan - the UK government doesn't see the expat community as anything like first class citizens.

By abolishing the personal allowance we will have to pay tax on all investment income, rental income and any other income such as pensions. Every penny will be subject to tax. If the Capital Gains tax rules are changed, we will have to pay CGT when we sell our home in the UK, even if it is our main residence.

Presumably we will still be able to claim tax relief on the expenses associated with renting out properties?

Are the rules around ISA's also going to be changed? Will we be stripped of those tax benefits too regardless of how long we've held the investment?

Are we still going to suffer the frozen state pension?

The current government are simply hitting anyone the see as soft targets and use the excuse of "well other countries do it". Yet the big boys will continue to find ways around this and be applauded by the same government for their "innovation".

I agree with all the above. However, there seems to be a question as to whether or not the Personal Allowance will EITHER continue for ex-pats, but NOT be usable against rental income, OR the Personal Allowance will be denied to ex-pats altogether.

As I receive the state pension and a small occupational pension - both of which added together exceed the Personal Allowance - there is no unused PA to be offset against the small rental income I receive and so I would continue to be taxed on it, as I have been for years. If the PA entitlement continues for ex-pats but can only be used against UK taxable pension income, and not against rental income, then nothing will change for me.

However, if the PA is denied to ex-pats altogether then that is a very different matter and would hit virtually all ex-pat pensioners very hard indeed. IMHO I think that would be a step too far for even this government - the outrage generated would be counter-productive. Could even this government risk incurring the wrath of not just the ex-pat pensioners but their families in the UK too and thereby alienate so many potential voters (and increasing all the time)? It's bad enough that our state pension isn't indexed each year and is forever frozen.

Should they go ahead,regardless, and abolish the PA for ex-pats, I for one will just return to the UK and claim every single benefit and entitlement that I, and my 5 year old son, will be entitled to - free health, free education, free transport, free TV licence, winter allowance, etc etc.

It's about time the UK government recognised, even quantified, the amount of money they SAVE already by ex-pats living overseas and then set that against how much it would COST the UK government in benefits/entitlements should we return to live in the UK.

Thanks for the link - I will certainly put in my sixpenn'orth!

[arisaje]

I know quite a few people living here on retirement extensions who survive on a combination of State pension plus a Company Pension.

No rental income involved.

These people already pay UK tax, I guess because the pensions are paid in the UK and the sum total exceeds the annual allowance.

I am reading that the said allowance could become zero for those out of the UK more than 6 months, certainly nearly all those I know.

A potential loss of £40 pw or £170 a month for a single person.

Some are struggling now.

Am I getting anything wrong here?

No, I think you're spot on. I currently have a company pension and investment income on which I pay UK income tax. If implemented, the proposals would make me £2,000 worse off (more as the nil rate band increases over time) or about 9,000 baht per month.

It seems to me that the UK government is treating its ex-pats as 4th rate citizens. I cost the government zero in health costs with visits to the doctor (and potentially hospital) plus I won't get a free bus pass when I'm 60 next year. Then, when I qualify for the state pension, the amount paid will never increase.

Alan

I agree Alan - the UK government doesn't see the expat community as anything like first class citizens.

By abolishing the personal allowance we will have to pay tax on all investment income, rental income and any other income such as pensions. Every penny will be subject to tax. If the Capital Gains tax rules are changed, we will have to pay CGT when we sell our home in the UK, even if it is our main residence.

Presumably we will still be able to claim tax relief on the expenses associated with renting out properties?

Are the rules around ISA's also going to be changed? Will we be stripped of those tax benefits too regardless of how long we've held the investment?

Are we still going to suffer the frozen state pension?

The current government are simply hitting anyone the see as soft targets and use the excuse of "well other countries do it". Yet the big boys will continue to find ways around this and be applauded by the same government for their "innovation".

Strange response......why do you think expats are, or even should be, treated like 'first class citizens'?

You, like myself probably chose to leave the UK because there were more opportunities and a better life to be had overseas. I don't consider myself as being 'first class' compared to people living in the UK and paying full taxes etc. and unfortunately tax loop holes are dropping like crazy, country by country.

What is even more worrying to come in the UK, is the same tax regime as they have in the USA.......whereby you have to pay 'full' taxes on global income regardless if you live in the UK or not. Its coming for sure....because the UK spends way too much money, actually it gives most of it away to all these failed states in aid.

Problem there is, if you don't pay, or they suspect you of not paying, they freeze your passport so you cannot move around, and force you to report to an embassy where they slap you with an inflated tax bill and some fines.

[Pattszero]

I know quite a few people living here on retirement extensions who survive on a combination of State pension plus a Company Pension.

No rental income involved.

These people already pay UK tax, I guess because the pensions are paid in the UK and the sum total exceeds the annual allowance.

I am reading that the said allowance could become zero for those out of the UK more than 6 months, certainly nearly all those I know.

A potential loss of £40 pw or £170 a month for a single person.

Some are struggling now.

Am I getting anything wrong here?

No, I think you're spot on. I currently have a company pension and investment income on which I pay UK income tax. If implemented, the proposals would make me £2,000 worse off (more as the nil rate band increases over time) or about 9,000 baht per month.

It seems to me that the UK government is treating its ex-pats as 4th rate citizens. I cost the government zero in health costs with visits to the doctor (and potentially hospital) plus I won't get a free bus pass when I'm 60 next year. Then, when I qualify for the state pension, the amount paid will never increase.

Alan

I agree Alan - the UK government doesn't see the expat community as anything like first class citizens.

By abolishing the personal allowance we will have to pay tax on all investment income, rental income and any other income such as pensions. Every penny will be subject to tax. If the Capital Gains tax rules are changed, we will have to pay CGT when we sell our home in the UK, even if it is our main residence.

Presumably we will still be able to claim tax relief on the expenses associated with renting out properties?

Are the rules around ISA's also going to be changed? Will we be stripped of those tax benefits too regardless of how long we've held the investment?

Are we still going to suffer the frozen state pension?

The current government are simply hitting anyone the see as soft targets and use the excuse of "well other countries do it". Yet the big boys will continue to find ways around this and be applauded by the same government for their "innovation".

Strange response......why do you think expats are, or even should be, treated like 'first class citizens'?

You, like myself probably chose to leave the UK because there were more opportunities and a better life to be had overseas. I don't consider myself as being 'first class' compared to people living in the UK and paying full taxes etc. and unfortunately tax loop holes are dropping like crazy, country by country.

What is even more worrying to come in the UK, is the same tax regime as they have in the USA.......whereby you have to pay 'full' taxes on global income regardless if you live in the UK or not. Its coming for sure....because the UK spends way too much money, actually it gives most of it away to all these failed states in aid.

Problem there is, if you don't pay, or they suspect you of not paying, they freeze your passport so you cannot move around, and force you to report to an embassy where they slap you with an inflated tax bill and some fines.

Who told you that? The policy isn't even in effect yet and your scare mongering already.