7 key questions around how pensions will be paid to those overseas

Following the June EU referendum, many employees (whether they have worked in the UK before returning home to retire, or are simply UK residents who plan to emigrate or retire overseas) have raised this and many more questions regarding how UK pensions are treated when paid overseas.

Whilst it’s possible to answer questions based on the UK position, it’s important to remember that the need to be mindful that once in payment, separate consideration will need to be given to the treatment of the income in the country of residence, as well as any additional country-specific tax considerations on the UK pension pot. This means seeking the appropriate tax advice.

1) Have the rules changed since the EU referendum?

At the time of writing, the position on paying UK pension benefits overseas is the same as it was prior to the EU referendum.

2) What difference does residency status make?

 An individual’s UK residence status affects whether they need to pay tax in the UK on foreign income. Residents normally pay UK tax on all their income, whether it’s from the UK or abroad. There are special rules for UK residents whose permanent domicile is overseas. Non-residents only pay tax on their UK income.

3) How do I work out residency status?

Residency status depends on many things, including the number of days spent in the UK during the tax year as well as other factors.

4) What is the UK position when paying benefits to an individual with UK pension benefits who is no longer a UK resident?

All pensions paid from the UK are taxed as earned in the UK, and are therefore subject to income tax.  However:

  • The income can be paid anywhere
  • Providers often need this to be paid in sterling to a sterling bank account

5) But if an individual is non-resident, do they need to pay tax on pension income?

If an individual is no longer a UK resident, but looking to receive a UK pension, they will need to complete a P85 form. Once completed and issued to HM Revenue and Customs, the individual will be issued with a new tax coding of NT (no tax) and a copy needs to be sent to the pension provider.

Until the provider receives a copy of the NT code, they must pay the pension net of tax, and will use an emergency tax code. Individuals can then reclaim the tax paid from HM Revenue & Customs once the correct tax coding has been received.

Individuals who fail to complete the P85 may be contacted by HM Revenue & Customs as use of the emergency tax code will trigger the local tax office to obtain the information they need.

6) Will pension freedoms and flexibility in pension payments still be available to an individual if they reside overseas?

If the pension provider offers flexibility within their contract, then as mentioned previously, income can be paid in any manner, anywhere. However, care must be taken as to how income, tax-free cash and indeed any remaining funds are treated in the country of residence, and individuals will need to take advice in their country of residence.

7) Will the pension scheme provide translation services?

Most probably not! Not least as some English phrases would definitely be lost in translation.

Karena Woodall is a consultant at Mattioli Woods.

The article was provided by Mattioli Woods.


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