For those about to retire abroad or those currently deciding whether a new life overseas could benefit them, there is a key question that always crops up. The question relates to the taxation treatment of British pension income. However, when it comes to expatriate tax saving and UK pensions there isn’t actually all that much you need to know or do – there are just some fundamental upfront decisions to make relating to the payment of your pension once you have moved abroad.
In this article we’ll explain all about your British pension and your UK or overseas taxation liability once you expatriate and retire abroad.
If you are fortunate enough to be in receipt of a decent private pension income upon retirement from a UK source, good for you! You have weathered financial storms and come out strong meaning that you can enjoy your retirement abroad in comfort…as long as you sort out the taxation treatment of your pension income first!
If you’re moving abroad permanently then you have the right and the option to dip out of the British tax regime as long as you satisfy certain criteria. You have to prove that you and your spouse are non-resident, intend to remain outside of the UK permanently for at least the foreseeable future, and that you therefore are not obligated to pay tax to the British taxman.
To do so it can be sufficient to have a property abroad in both names for example. But first, you actually have to look at the tax regime in your new, adopted country of residence and see if it is advantageous to pay tax on your pension there, or more fiscally astute to pay tax in the UK. UK pension income is taxed at a rate of 20% at source. If you move to Cyprus for example, where tax treatment of qualifying pension income for expats is only 5%, you would of course be better off claiming your pension income gross in the UK and paying Cypriot tax.
If on the other hand you’re moving to live abroad where there is little in the way of expatriate tax saving to be gained, you may instead prefer to be taxed at source in the UK.
Once you have made this basic decision you need to also ensure there is a double taxation agreement in place between the UK and your new country of residence. There is a list of nations with which Britain has agreements in place on the HMRC website.
If you determine that you want your UK pension paid gross you need to get confirmation from HMRC that they accept your non-resident status. Start by visiting their Centre for Non-Residents pages on the internet. You will be given a form to fill in, this will need to be signed by the authorities in your new country and returned to HMRC with any supporting documentation that they deem a requirement, once they have then determined that you are non-resident and that the regime under which you will now be taxed is acceptable to them, you can receive your pension gross – i.e., without the deduction of taxation at source.