Expats Face Tax Hike

Sandy King
  • As many as 400,000 expats could be affected
  • Couples could see their tax bills rise by up to £4,000 
  • Property owners living abroad could be hit
  • Changes to tax rules could force some to rethink their retirement plans abroad.


PUBLISHED: 09:18 EST, 12 August 2014 | UPDATED: 11:08 EST, 12 August 2014

Thousands of expats are facing a tax hike as the Treasury plots to snatch back the personal allowance for those living abroad, an official document reveals.

As many as 400,000 individuals who live abroad but claim the personal allowance in the UK could be affected.

In the most extreme cases, being stripped of the personal allowance could lead to an additional tax bill as high as £4,000 for a couple living abroad

In reality, the impact is unlikely to be this big. Most expats affected are likely to be able to claim tax relief in the country where they live, so their tax bills will not be as high as this.

However expats living in countries with low tax rates – such as Hong Kong or Dubai – could suffer as they may not be paying enough tax in the country where they live to offset their tax bill in the UK.

Expats who live abroad but earn an income from property in the UK could also be hit.

Until now, the 175,000 Britons living abroad who earn an income from renting out their UK property could make up to £10,500 a year without having to pay tax – or £21,000 for a couple.

The relief was valuable to retired people living abroad and being supported by small pensions and income from renting their property in the UK.

But the proposed changes would remove this tax break, leading to costs potentially running into the thousands for anyone not able to claim tax relief in the country in which they live.

Some former civil servants, NHS staff and employees of local authorities could also start incurring tax bills unless special provision is made.

The majority of the 1.2million British pensioners living abroad are unlikely to be affected because most state or private pensions are only taxable in the country of residence.

But some retirees have pensions that are only taxed in the UK and so would suffer a considerable increase to their tax bill if the personal allowance was removed.

The move combined with other proposals that would claw back tax from non-residents who own property in the UK could put a serious dent in the retirement plans for Britons planning to move to a sunny destination abroad in the future.

‘Expats could face a double punch as they face a cut to their personal allowance and a hit from changes to capital gains tax – plus inheritance tax as well of course,’ warned Tim Stovold, tax partner at accountancy firm Kingston Smith.

He warned that from April next year, expats who own property in the UK will be liable for capital gains tax. This will mean expats will have to pay tax on any increase in value to property from 2015.

The move is therefore unlikely to affect current pensioners, but workers in their 40s or 50s who are planning to retire abroad and rent out their property in the UK could face a tax bill both when they rent the property and again should they eventually go to sell it – even though they are living abroad.

‘It will become increasingly difficult to break from the UK tax system,’ he added.

The latest proposals are designed to crack down on what is seen as an inequality in the tax system, whereby a worker on a high salary could come to work in the UK for a short amount of time and pay little or no income tax because they benefit from the tax free allowance.

The move would bring the UK in line with most other countries, which already limit non-residents’ entitlement to the equivalent of the UK’s personal allowance.

Only those with a ‘strong economic connection’ to Britain would still be eligible for the allowance, if the proposals go ahead.

‘Until recently the tax free allowance was much lower and so there was not such a spotlight on it. but it has risen very quickly to above £10,000 so the cost is getting more expensive,’ adds Tim Stovold.


‘However you have to weigh up the tax revenues from changing the rules with compliance costs. The majority of people who will be caught by it will be low earners who would bring in very little tax but would be hard to trace.