In a nutshell, you have to pay tax
on your UK pension, even if you’re not a UK resident, except for
the State Pension, where non-residents are not obliged to pay UK
So, for example what happens if you
are living in Germany with a UK pension?
UK Citizens Living Abroad
It is possible that you may be taxed
twice in the UK and in Germany. UK-based pensions are considered
income that originates from the UK, which is why it is tax
deductible. All payments made to a UK pension are taxed based on an
individual’s UK marginal tax rate.
But the Double Tax Agreement between
the two countries are clear – residents of Germany who receive
UK-based pension only need to pay tax in Germany, except when the
pension contributions are under the 15-Year Condition on
Contributions, where tax is relieved for over 15 years, or are tax
deductible. Under the circumstances, pension payments are taxable
in the UK.
However, the exception doesn’t apply
when the tax relief was clawed back, the 15-year tax relieved
contributions were fulfilled in Germany, and the UK does not
effectively tax the pension.
Double Taxation on Overseas Pension
In the event that you are taxed
twice, you can apply for a partial or full relief before you are
taxed or a refund after taxes. It is likely that you will get a
substantial tax rebate, because the Double Taxation Agreement
specifies that the higher tax rate between two countries will
apply. So, if Germany has a higher tax rate than the UK, the tax
rate in Germany will apply.
You also have an option to transfer
your pension to other jurisdictions under the Qualifying Recognised
Overseas Pension Scheme (QROPS). But you have to make sure that you
get the upper hand by consulting with tax experts.
So if you’re a UK citizen living
overseas and need tax advice speak with one of our tax agents at email@example.com