UK bank interest received by non resident individual

UK bank interest received by non resident...

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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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By Steve Kesby
25th Jun 2014 11:07

Is...

... THIS any help? :)

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By John Hughes
25th Jun 2014 14:04

I can use google !

Steve, thanks for reply.

I have already trawled through hmrc pages, but seem to end up with conflicting answers.

I was hoping someone with experience of the situation may be able to help.

John

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By Steve Kesby
25th Jun 2014 14:28

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.

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By John Hughes
25th Jun 2014 14:26

Thanks

Steve, thanks for help.

Yes, I had seen that info.  But, the red herring that I was concerned about was that I had also read that this course of action would preclude the ability to claim personal allowance (which is currently being used against pension).

I know this does no make sense, and I am embarrassed to say that I can not now find the web page where I read this....

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By John Hughes
25th Jun 2014 14:52

Steve Kesby - I have found it

Steve,

I have found the 'red herring' I was referring to.  It was actually within another AWeb question, which you also contributed to :

https://www.accountingweb.co.uk/anyanswers/question/income-tax-bank-interest-income

The previous answer to your own states that a claim to limit the tax to that withheld on the interest would lead to the loss of UK personal Allowances.

Is this correct ?

Thanks,

John

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By Steve Kesby
25th Jun 2014 14:59

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.

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By John Hughes
25th Jun 2014 15:49

Steve - pure clarity. thank you !

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