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6. UK personal tax allowances

6.1. What are UK tax allowances?

Almost all people who are resident in the UK are entitled to an Income Tax Personal Allowance. This is the amount of income you can receive each tax year without having to pay tax on it. Depending on your circumstances, you may be able to claim other allowances such as Blind Person’s Allowance or one of the age related levels of Personal Allowance.

6.2. When can’t you claim UK tax allowances?

For tax years from 6 April 2008, if you are resident in the UK and:

  • not domiciled (see part 4) and/or not ordinary resident (see part 3) in the UK, and
  • have £2,000 or more in unremitted foreign income and/or gains, and
  • claim the remittance basis (see part 5) then, in most cases, you will not be entitled to UK personal tax allowances. In this case, legislation removes your entitlement to UK allowances and reliefs under domestic law. The only exception to this affects some people who are ‘dual residents’ – that is resident in the UK and also resident in another country under that country’s rules (see part 9). This exception does not affect all dual residents; only those who qualify for allowances under certain Double Taxation Agreements (see 6.5).

The allowances you will not be entitled to when you make a claim to use the remittance basis for a tax year include:

  • all levels of the Personal Allowance
  • Blind Person’s Allowance
  • tax reductions for married couples and civil partners.

You will also lose tax reliefs for certain payments for life assurance premiums and the Annual Exempt Amount (AEA) which is an allowance you set against any capital gains you make during a tax year when disposing of assets.

6.3. How do you receive UK tax allowances?

If you already pay UK tax through your job or pension, or if you complete a Self Assessment tax return, you should receive a Personal Allowance if you are entitled to one. If you are an employee in the UK, you will have tax deducted at source from your wages or salary under the ‘Pay As You Earn’ (PAYE) system. Your employer will deduct tax on the basis of code numbers which we send them for each employee. The code we send for you should take into account the tax allowances and reliefs you are entitled to.

If you need to claim UK tax allowances, you must do so no later than 31 January, five years after the end of the tax year to which the claim for allowances relates. From 1 April 2010 the time limit changes to four years from the end of the year of assessment. For example, if you are claiming for the tax year 2010–11 (6 April 2010 to 5 April 2011), you have until 5 April 2015 to claim.

6.4. What should you do if you have UK tax allowances and use the remittance basis?

From 6 April 2008 onwards, if you have claimed the remittance basis (see part 5) and your unremitted income and/or gains is £2,000 or more you will not be entitled to the allowances listed in paragraph 6.2.

If you decide during a tax year that you are going to use the remittance basis and you are still receiving personal allowances through the PAYE system, you may not be paying enough UK tax. If you let us know, we can arrange to adjust your PAYE code so that you are not left with a tax bill at the end of the year because you have received personal allowances which were not due because you were using the remittance basis. Otherwise we will ask you to pay the additional tax through the Self Assessment system.

If you want us to adjust your PAYE code you should contact the office which deals with your PAYE and ask for a tax code to be sent which does not give relief for personal allowances. This will reduce the amount of tax you may have underpaid at the end of the tax year. Your employer can’t do this for you as your tax affairs are confidential between you and HMRC. Until they receive a new tax code from us, your employer will continue to deduct tax from you based on the code we sent before you told us you were claiming the remittance basis.

6.5. Are you entitled to UK personal tax allowances when using the remittance basis?

Some people who claim use of the remittance basis are still entitled to UK personal tax allowances. If you are resident in the UK and, at the same time are resident in one of the countries shown (that is you are ‘dual resident’) you will be able to receive UK personal tax allowances in any year that you claim the remittance basis.

The Double Taxation Agreements (DTAs) between the UK and the countries listed on the left make specific provision for the residents of those countries to be given entitlement to UK personal tax allowances. This specific provision does not appear in other DTAs and only those people who are dual resident in the UK and one of the countries listed here are entitled to UK personal tax allowances in a tax year when the remittance basis is claimed.

Although these DTAs allow you to claim the remittance basis and still receive UK personal tax allowances, you will need to consider carefully whether, in your particular case, it actually makes sense to do so. The terms of the DTA might mean that there is, in fact, no benefit in claiming the remittance basis as the non-UK country may tax any foreign income or gains not remitted to the UK.

6.6. Allowances for non-UK residents

Even if you are not resident in the UK, you may be able to claim UK personal tax allowances if you are:

  • a Commonwealth citizen *
  • a citizen of a state within the European Economic Area (EEA) (this includes a British citizen), that is a citizen of a Member State of the European Union, Iceland, Liechtenstein or Norway
  • a current or a former employee of the British Crown (including a civil servant, member of the armed forces and so on.)
  • a UK missionary society employee
  • a civil servant in a territory under the protection of the British Crown
  • a resident of the Isle of Man or the Channel Islands
  • a former resident of the UK who lives abroad for the sake of your own health or the health of a member of your family who lives with you
  • a widow, widower or the surviving civil partner of an employee of the British Crown
  • a National and/or resident of a country with which the UK has a Double Taxation Agreement which allows such a claim.
  • * This category applies only until 5 April 2010. From 6 April 2010, you do not qualify for UK personal tax allowances solely by virtue of being a Commonwealth citizen. But, you may still qualify for these allowances under other provisions or through a relevant double taxation treaty.

6.7. Allowances when coming to or leaving the UK

If you become or if you cease to be resident in the UK during a tax year, you will still be able to claim full allowances and reliefs in the year of your arrival or departure. This will be subject to any claim that you have made to the remittance basis of taxation as outlined earlier in this part of the guidance.