An individual retired to Thailand a couple of years ago.
His only source of income is a UK police pension, and interest on uk bank deposits.
Should the bank interest be taxable in the uk - is it possible to apply for gross interest ?
Thanks for any help / advice.
Replies (7)
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OK...
... so you didn't find the 2nd and 3rd hits at all useful?
A non-resident's liability to UK Income Tax is generally limited to the tax deducted at source, but under ITA 2007, s. 858 a non-resident individual, beneficially entitled to the interest, can make a declaration (on form R105 - third hit) to the bank/building society, which then permits them not to deduct tax.
However, as the "Tax on UK income or capital gains for non-UK residents" (2nd hit) explains, not all banks and building societies do this (but only because it's a hassle). Tip: If the bank building society won't do it, consider moving the money to one that will.
Whether or not that conflicts with anything they say elsewhere, I don't know. However, I'm not sure why else they'd have a special form for it.
Ah I see
Sorry, I'd missed the pension.
You can still get it paid gross, because the requirement is just that the individual is non-resident, but you will effectively need to include it as taxable income if you want a personal allowance, meaning that you're no better off.
Essentially if you're entitled to a personal allowance, you can either claim it or not. If you've got other income taxable in the the UK of any substance though, why wouldn't you?
ITA 2007, s. 811 then says that the total liability is then limited to the sum of the tax deducted at source on the disregarded income (the interest) and the tax liability you'd calculate if the disregarded income and PA were omitted.
So if the pension is £20K and the bank interest is £5K, you start with £25K taxable, take of the £10K PA and tax £15K at 20%, being £3k, and you may or may not have had £1K deducted at source.
That's limited to the tax deducted at source (£0K or £1K), plus the £20K taxed without the PA. So the total tax ends up being capped at a higher figure than the actual tax, rendering the disregarded income taxable if you want to claim a personal allowance.
That's probably what the web page you saw was trying to explain.
EDIT: Cross-posted with you. It's not that you lose the personal allowance, but the only way that the interest isn't taxable at all is if you don't claim it, meaning that you're worse off on the pension.