Withdrawal of UK Personal Tax Allowances for Commonwealth Citizens

John Andrews at LITRG highlights the withdrawal of entitlement to UK personal allowances for Commonwealth citizens.

Introduction

The Finance Bill now going through Parliament proposes to withdraw entitlement to UK personal tax allowances from Commonwealth citizens living in some of the poorest countries in the world. This means they may have to pay UK tax for the first time.

Perhaps they need a Joanna Lumley to run their campaign.

The measure will take effect from April 2010. The countries whose citizens are affected are:

• Bahamas;
• Cameroon;
• Cook Islands;
• Dominica;
• Maldives;
• Mozambique;
• Nauru;
• Niue;
• St Lucia;
• St Vincent & the Grenadines;
• Samoa;
• Tanzania;
• Tonga; and
• Vanuatu.

Since time immemorial, UK tax law has given UK personal allowances to Commonwealth citizens who live overseas but have income arising in the UK. Now HMRC lawyers are saying that this is contrary to European human rights laws, because Commonwealth citizens are being treated more favourably than citizens of other countries.

Nevertheless, UK law allows citizens of EEA countries, not just the EU, to claim personal allowances, and nearly all Commonwealth countries have double taxation agreements with the UK under which their citizens are similarly entitled.

However, the countries listed above, which are among some of the smallest and poorest Commonwealth countries, do not have double taxation agreements with the UK. So their citizens can claim personal allowances under only one provision, which the Finance Bill now proposes to withdraw.

This will mean that residents of those countries with small sources of income arising in the UK will pay UK tax at 20%. Many of them will have worked in the UK (for example, attached to the armed forces, or in the health service) and retired back to their home country with their UK pension. Some who have been Crown Servants may escape under other provisions, but most will be caught. And no-one will have warned them what is to happen.

In attempting to end unlawful discrimination in favour of Commonwealth citizens, the Government has ended up discriminating against citizens of some of the poorest of those countries.

The debate in Parliament

This issue was debated in Parliament earlier this week and the government position was expressed thus:

“lawyers made the point that granting personal allowances solely on the fact that somebody is a Commonwealth citizen would be discrimination on the basis of nationality and therefore should not be continued”

“no implication for EU nationals”

“Most Commonwealth citizens with income liable to tax in the UK will still be able to claim UK personal allowance”

“They are all quite small in relative terms. I have no doubt that we could find people who would lose personal allowances as a result of the measure, but the question is whether they should be advantaged relative to somebody from a non-Commonwealth country who is in the same position”

“There have not been discussions with the individual Governments concerned, but the measure will not come into effect until April next year so there will be the opportunity to rewrite guidance and advise those who are affected.”

Nowhere did they recognise that small numbers from poor countries will have their personal allowances taken away, while people from the richest nations of the world will continue to get theirs. HMRC need to put some new provisions in place so that people do not lose out.

Where are you Joanna?

The above article is reproduced with the kind permission of the Low Incomes Tax Reform Group, originally published under the title: "Another Cause for Joanna Lumley?"

Article Added Saturday, 13 June 2009

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