There appears to be some misunderstanding about how an expat has their UK pension taxed. This article briefly explains the interaction between UK pensions, tax for non-UK residents and the DTA ( Double Taxation Agreement ) that may exist between the UK and in the country of residence.
This article cannot cover every country and every jurisdiction so contact us if you have a specific question.
How an expat has their UK pension taxed
This misunderstanding about how an expat has their UK pension taxed is further compounded by a lack of understanding from some offshore salesmen that recommend transfers of pensions away from the UK into QROPS.
Do you avoid taxes by moving your UK pension away from the UK into commonly a QROPS?
No, in most case no additional tax is saved, and in some cases HIGHER taxes will apply than leaving it in the UK.
How do we know when it is beneficial to consider a transfer?
In essence it will come down the Double Tax Agreement between where your pension is based and the way in which local taxes apply where you retire. This last part is critical, it is where you retire that counts, not where you currently live and not purely where your pension resides!
So, if I live in Spain or France I can take a higher tax free cash by moving my pension from the UK?
We are writing a whole article about this, but in essence NO, NO, NO. As we have already written How an expat has their UK pension taxed is down to also where they retire and not where the pension is based. Neither France, nor Spain, recognise the tax free status of the tax free cash and so will tax it. This is especially true of a QROPS which they do not recognise as a UK pension.
So, if I live in South Africa I can only avoid taxation of my pension from the UK by moving it to a QROPS?
Not correct. Due to pension freedom rules in the UK and the DTT with South Africa for most people the best thing I see to leave their UK pension in the UK. Some cases may still consider moving to a QROPS but they should be the exception rather than the rule.
So, an expat who wants to know How an expat has their UK pension taxed should do what?
They should come to a firm like ours who are regulated in countries such as the UK, the USA, Spain and France and 24 other countries and they should take advice about the Double Tax Agreement and how HMRC treat tax. The Double Tax Agreement ( DTA ) may allow expats to claim tax relief or access pensions better from the UK than from a QROPS in some countries.
This blog was prompted by a recent tweet from an offshore firm that publically stated “How much Tax will you pay on your Income when you retire? You will be taxed at the rates where your pension is held”
Surely, anyone reading that would think that HMRC apply tax for non-UK residents in all cases. The answer to How an expat has their UK pension taxed is not in this tweet!
A little more searching on the internet came up with other such examples. “Did you know that when you draw an income from your UK pension fund that HMRC may levy a 20% non-resident withholding tax?” That may be the case in some countries but not many and hardly any of the main countries that UK expats go to live in. An example of one country where people do have to be careful is Australia, and that is why we have set up a partnership with a firm regulated in Australia.
After all we are talking about UK pensions and I am sure the best place to find out to see whether HMRC apply tax for non-UK residents is HMRC’s own website
Do HMRC apply income tax for non-UK residents ( AKA expats ) on their pensions in the UK?
HMRC say on their website
Pensions, other than Government pensions (see DT1927), paid in consideration of past employment to a resident of a country with which the United Kingdom has a double taxation agreement are normally taxable only in the country of which the pensioner is a resident but there are exceptions to this. For example, the agreement with Sweden gives limited taxing rights to the source country, the agreement with Zimbabwe gives sole taxing rights to the source country if the employment in respect of which the pension is paid was exercised in the source country, and some other agreements enable both countries to tax such pensions or only give exemption in the source country if the pension is subject to tax in the country of which the recipient is a resident.
Claims by residents of agreement countries to exemption from United Kingdom tax on such pensions are made to HMRC. The relevant office (see DT1820) will authorise non-deduction of United Kingdom tax if a claim is accepted.
Well, that appears to be clear, if an expats want to check to see whether HMRC will apply tax for non-UK residents, then the Double Tax Agreement is the first thing to read.
In fact HMRC actually help expats claim relief from tax so removing the tax for non-UK residents (Link here)
HMRC say “ …… once they have approved the claim, will make the appropriate repayment to the claimant, and may issue a notice to the payer of income authorising the non-deduction of Income Tax from future payments or the deduction of Income Tax at the rate specified in the notice”.
We hope this article about How an expat has their UK pension taxed is helpful, so now look at other articles on this subject by looking down the list on the right. We have a specific article on Double Tax Treaties.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
This article was published in February 2016
See various video’s about this at our channel TAILORMADE FUTURE.
- 10 Reasons to use a QROPS – the facts and the myths – 45 % UK pension tax (2)
- Double Taxation Treaties as part of Expat Financial Advice
- UK residents- is 90% QROPS pension income taxable
- A QROPS Helps Save Tax
- Expat pensions – QROPS, Sipps and death taxes explained
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