Her Majesty’s Revenue and Customs
[HMRC] have released a consultation document which would if implemented create
financial hardship for quite a few British Citizens who live abroad.
It can be read at - goo.gl/Jj5D2j
The thought behind this is to
remove the tax-free personal allowances on income which arises in the United
Kingdom paid to Citizens abroad.
It has two errors.
It assumes that tax credits granted in any State of residency
will completely offset the tax paid in the UK.
It also seems to assume that the UK
sourced income is not significant to the recipients. How wrong they are.
The Double Taxation Conventions
Attention must be drawn
to the misleading wording in the paper .
Section 6.2 states : –
However most of these individuals would be able to claim
relief overseas either in the form of a credit for tax paid in the UK or exemption
from tax in their home state.# Therefore
most individuals would not generally pay more tax overall than they do now***.
However this will depend on the relative level of tax rates and allowances
between the UK and their
country of residence.
# if the taxpayer
specifically claims under a double taxation treaty!
***This Statement is sending/implying false
information- Under the French/UK Double Taxation Convention (and indeed most
others) the tax relief on tax paid in the UK IS NOT the actual tax paid but the tax that would have been paid if the
income had been taxed in France.
As it is, those who have their pensions taxed ‘only’ in the UK
are quite clearly disadvantaged##. Such
disadvantage would be very greatly exaggerated for other recipients of private
pensions, earned income, rents etc. from the UK if the personal allowance were removed. It is
extremely unlikely that the tax credit given against a French Tax demand on
world-wide income, in respect of tax paid in the UK
is ever equal to the tax paid in the UK.
Thereby any resident
who pays tax which would fall under a Double Taxation Treaty would lose out,
because of the different levels of tax regime. The removal of the Personal
Allowances would exacerbate this.
##The elderly
expatriate in France who receives all their income from the UK, the majority of
which in taxed in the UK is currently disadvantaged because any tax credits
achieved in France [e.g for home helps – charitable support] cannot be set
against the taxes paid in the UK, but only against a minimal tax liability in
France. They therefore pay a bundle of
tax to the UK , none to France, and overall far more than if they were only taxed in France on all the income.
The Nature of the
Citizen Abroad and the importance of this income.
HMRC need awareness of the nature of the citizen abroad
especially in the EU.
Many citizens who live in other States of the EU are
ordinary folk. They may have retired on little
more than the State pension. Some (perhaps many) have retained a property in
the UK and
rented it out to get an income. They
retain the property just in case they need to return to the UK
at a later stage in life.
This rent on their property is important to them. It could well exceed 40% of their income Let
us say that it brings in £10,000 a year.
If the tax-free personal allowance is removed the tax authority will
take £2,000 and their income is reduced to £8,000.
These citizens are just ordinary folk who I fear do not
understand the taxation system and its convolutions. I am aware that many still have their State
pensions taxed in the UK
although they could get them ‘exported for tax purposes’. The same is true of Bank interest. They could request the Bank to pay the
interest gross so that it avoids UK
tax. Neither HMRC nor the Banks tell
them how to do this. Some Banks are
reluctant or refuse to pay the interest gross.
The average taxpayer badly needs simplicity and guidance. It is already
apparent that various non-residents have only a superficial grasp of where they
should be paying tax and how to deal with the various tax forms from two State
tax authorities. The fact that HMRC says
that 400,000 expatriate Citizens ‘claim’
the personal allowance on UK
income reflects this confusion. Such insouciant citizens could well be in for a
very great shock. They are not evil
people. They are just average people and not that aware of the financial
complications invented by the civil
service.
Some private pensions have to be taxed in the UK. These will also suffer from a greatly
increased tax burden if these tax allowances are removed. As said above
tax credits will not allay such taxation in the UK.
B Low Incomes HMRC, I repeat, has not understood the varied
lives of those British citizens resident in France
who have low incomes emanating from the UK.
There are those who earn income from the UK
and are thereby taxed on that in the UK. They may offer a service of some kind (e.g
consultancy), or mark exam papers or sell goods which they make themselves.
They may even ‘commute’ on occasions to perform some function. There are those people who ‘work from home’ and that home could
easily be in France
or elsewhere. They are non-UK-resident but otherwise are no different from a
‘home worker’ in the UK.
There are those who have some form of investments which pay
interest in the UK.
A number with low incomes have been informed by HMRC that
they are ‘non taxable’ because of their low incomes and need no longer complete
a tax return.
Their income is taxable also in France
but the French tax system is favourable
and they lie below the tax
thresholds in France
also.
It may be difficult for tax officials to understand but many people are already in a state of
confusion where what income should be declared to their national State or their
State of Residence. The Tax departments lay down rules which are
difficult for the average person, especially the elderly, to understand and
this policy consultation document is compounding this confusion of bureaucracy.
Remember further that large numbers of people, especially the elderly, do not have computers nor access to the internet
and have little understanding of how tax laws operate across the State borders
in Europe. It would be far wiser for tax departments in
collaboration across the EU to simplify the rules rather than complicate them.
Complications -- The ratio of income arising in the UK and abroad
A suggestion is made (see section 5.2) that the expatriate
tax payer might declare how much income is raised abroad and how much arises
within the UK. The reference to % of
income received from here and there, UK
or elsewhere, and minimal income limits
is frankly onerous. It is a step
into new territory and a step too far.
Consider a retired couple who let out part of their property for holiday rental in France. Why should they tell the UK
tax authorities what income they receive from that minor income? This is getting towards an expectation that
all British expatriate citizens
should disclose their world-wide income to the British tax authority.
And if the ratio should be £1 either side of the threshold ratio
it would mean a cliff face in the
amount of tax demanded. i.e a difference
of possibly £2,000 or more.
***********************
One can write to HMRC to comment and protest..
( before the 9th October 2014) to
A draft letter along with a repeat of the material here (EXPANDED) can be read at
www.lefourquet.net/90Cdraft.doc
www.lefourquet.net/90Cdraft.doc
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