As with all other areas of UK life, people are predicting and preparing for every Brexit eventuality. Blick Rothenberg’s Robert Slater is an expert in expatriate and employment taxation. He is concerned that EU resident British expatriates could lose their eligibility for the UK Personal Allowance, if there is a No Deal Brexit in October.
Why could British people lose their Personal Allowance entitlement?
Within UK tax law, British nationals who are non-resident for tax purposes keep their Personal Allowance entitlement because of their status as EEA/EU citizens. Crashing out of the EU without a deal automatically puts this into flux. According to UK law, without that status, the Personal Allowance does not apply.
Does this affect many people?
It will affect everyone currently living in an EU country that has an income source in the UK. This includes common income streams for expats, like property rental or pension.
The UN estimated that there were 1.3m UK nationals living in other EU countries in 2017. The current government have used the figure one million during discussions about Brexit. Some of these people will not be affected because they do not have any income from the UK.
What will the impact be?
The 2019-20 tax year Personal Allowance amount is £12,500. As a UK non resident, you can use this to offset against your UK income. Without it, all UK income will be taxed at least at the 20% Basic Rate of income tax. With the possibility of paying 40% or even 45%, depending on your total income.
For particular individuals, this is a substantial impact on earnings, particularly if you’re already in retirement.
Have you worked for the government? That’s civil servants, nurses, teachers and everyone else that has worked within our country’s infrastructure. You’ll be worst hit by your missing Personal Allowance because, thanks to international agreements, your government pension is usually only taxable in Britain. According to Salter this becomes “an absolute additional tax charge on such individuals.”
Can this outcome for UK non res expats be avoided?
It will require the government to act very quickly, if we crash out on a No Deal Brexit. Our tax law will need to be changed in one of two ways. One way is to encompass British non residents within those eligible for the Personal Allowance, even though they will not have EU/EEA status.
The other way is to re-classify all those who are non-resident for tax purposes as ineligible for the Personal Allowance. The second option will definitely save the Treasury some money. As Salter explains: “The government could as a ‘tax saving’ measure, choose to remove the entitlement to UK personal allowances for all non-resident individuals, regardless of their nationality.”
This kind of detail has not been discussed publicly by either of the main contenders for the Conservative and DUP Party leadership. HMRC and the rest of government have not made any specific No Deal Brexit commitment to protecting the Personal Allowance entitlement for UK non residents, as yet.
