Are we entitled to a tax-free pension if we live abroad?
Are we entitled to a tax-free pension if we live abroad?
I am thinking of moving abroad to live on a permanent basis. Does anyone know if I can get my RAF pension paid gross ie without UK tax being deducted? I seem to remember seeing some time ago a list of countries where this was possible but can't remember where! Yes, I know I'm old and forgetful
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OKOC,
No. You will pay tax whereever. The trick is ensuring you pay the least tax.
So yes, you can get your pension paid gross. You can get it paid into a UK account or, I believe, into an overseas account. There was some discussion on pprune on the best way to do this. I believe it was to agree exchange rates in advance and then only effect the transfer if the rates were favourable. You really need a profesional advisor as you are not talking simple in-house schemes but schemes that apply to everyone.
There are also issues on OAP pensions too. In some countries these are frozen at the applicable rate when you draw it, in others it remains with the UK index linking.
No. You will pay tax whereever. The trick is ensuring you pay the least tax.
So yes, you can get your pension paid gross. You can get it paid into a UK account or, I believe, into an overseas account. There was some discussion on pprune on the best way to do this. I believe it was to agree exchange rates in advance and then only effect the transfer if the rates were favourable. You really need a profesional advisor as you are not talking simple in-house schemes but schemes that apply to everyone.
There are also issues on OAP pensions too. In some countries these are frozen at the applicable rate when you draw it, in others it remains with the UK index linking.
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I think it depends on where you plan on living too. The State pension issue, which is currently being challenged, relates to Commonwealth countries. A search on Pprune would be worthwhile, and there are other forums discussing the issue, although I can't remember where - Google is your friend...
Good luck.
Good luck.
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OKOC
You need to check the Double Taxation treaty between your intended Country of Residence and HMG. In general HMG reserves the right to tax "UK Government Pensions" in the UK irrespective of where you are resident. My Wife and I are both taxed by HMG on our Occupational Pensions (She was a College Vice Principal) and are thus exempt under the UK/France Treaty from French income tax on those Pensions. The Treaty does not refer to other Pensions paid out of UK public funds such as the DSS old-age pension; except that certain disability pensions paid to members of the UK Armed Forces are exempt from tax in both the UK and France.
NB This may not apply in the Treaties concluded with other Countries!!
Good Luck!!
You need to check the Double Taxation treaty between your intended Country of Residence and HMG. In general HMG reserves the right to tax "UK Government Pensions" in the UK irrespective of where you are resident. My Wife and I are both taxed by HMG on our Occupational Pensions (She was a College Vice Principal) and are thus exempt under the UK/France Treaty from French income tax on those Pensions. The Treaty does not refer to other Pensions paid out of UK public funds such as the DSS old-age pension; except that certain disability pensions paid to members of the UK Armed Forces are exempt from tax in both the UK and France.
NB This may not apply in the Treaties concluded with other Countries!!
Good Luck!!
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When you move overseas, you'll get the yearly P60. If you have no other "unearned income', say rent on property, you'll still get tax deducted from the RAF Pension at source I.A.W. your Final Tax Code, which is basically anything over your personal allowance. Income earned from other stuff such as rent, sale of property etc., all has to be declared, but it's not very difficult, get an accountant or financial advisor with expertise in overseas living if you're not sure.
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Pontius is right,
Finding the lowest rate is the secret, you are liable for tax on it anywhere in the world. And don't pay a tax advisor more than you will save for his advice!
No. You will pay tax whereever. The trick is ensuring you pay the least tax.
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Okoc,
DT has been mentioned - this may be useful.
http://www.hmrc.gov.uk/cnr/app_dtt.htm#3
As your pension is deducted from your allowance, all pension is paid gross, but if you're not domociled in the UK and not drawing from the range of collective benefits that one's tax pays for, then your UK pension should not be subject to UK tax. Tell HMRC that you will not be resident and they should issue an NT (No Taxation) code number for your pension. Tread carefully though. By 2012, all public service and sector pensions should be linked to AEI, and not RPI, and you might lose that undoubted benefit if you have your pension paid directly overseas.
You don't say if you'll be a working ex pat, or retired and you'll need to provide evidence to HMRC of your long term aim to remain there, wherever it might be. If HMRC accepts this, you'll be treated as non-resident so long as your absence covers a complete tax year and you live abroad for three years or more. You'll be limited to the amount of time you return here (something like 3 months a year). But if you can't confirm that you have gone abroad for good, you'll remain resident in the eyes of HMRC at least, for three years or so (but then you can claim back any tax paid).
Also, what is the taxation situation where you intend to go to? Is it even worse than here? Also, will you have any other earnings to potentially offset? Pensions are paid gross and taxed as earned income as you probably know and it might be that if you have no other incoming revenue, your earnings threshold won't be reached and the issue of taxation could be moot anyway. Be careful too, if you try to be clever and chuck it offshore. If you decide to move back to the UK, you'll probably get stung, badly. If you don't need the money to live on, then you can invest in another pension anyway (it won't be recycled cash), and then the g'ment will treat it as net, and bump up your contribution - mitigating potentially, the impact of any tax.
Are you married.. are the couples benefits going to be more advantageous if you adopt an approach other than the obvious one? Also, a point to consider is your age - you don't say how old you are. Don't forget, that by the age of 75 (at the latest) you have to take out a secured or alternatively secured pension anyway, and is age allowance an issue? When your income goes above a certain level, that extra age allowance starts to be raked back. The current income limit is about £21k. If your income from pensions, taxable interest etc. is below this, you get the full higher age allowance. If your income is over that, you'll lose £1 of the higher allowance for every £2 of income above this point.
In essence, whatever the HMRC regs say about this, take proper and considered advice which relates to you. What might be beneficial for one person with one particular set of circumstances, won't always be the best choice for the next.
DT has been mentioned - this may be useful.
http://www.hmrc.gov.uk/cnr/app_dtt.htm#3
As your pension is deducted from your allowance, all pension is paid gross, but if you're not domociled in the UK and not drawing from the range of collective benefits that one's tax pays for, then your UK pension should not be subject to UK tax. Tell HMRC that you will not be resident and they should issue an NT (No Taxation) code number for your pension. Tread carefully though. By 2012, all public service and sector pensions should be linked to AEI, and not RPI, and you might lose that undoubted benefit if you have your pension paid directly overseas.
You don't say if you'll be a working ex pat, or retired and you'll need to provide evidence to HMRC of your long term aim to remain there, wherever it might be. If HMRC accepts this, you'll be treated as non-resident so long as your absence covers a complete tax year and you live abroad for three years or more. You'll be limited to the amount of time you return here (something like 3 months a year). But if you can't confirm that you have gone abroad for good, you'll remain resident in the eyes of HMRC at least, for three years or so (but then you can claim back any tax paid).
Also, what is the taxation situation where you intend to go to? Is it even worse than here? Also, will you have any other earnings to potentially offset? Pensions are paid gross and taxed as earned income as you probably know and it might be that if you have no other incoming revenue, your earnings threshold won't be reached and the issue of taxation could be moot anyway. Be careful too, if you try to be clever and chuck it offshore. If you decide to move back to the UK, you'll probably get stung, badly. If you don't need the money to live on, then you can invest in another pension anyway (it won't be recycled cash), and then the g'ment will treat it as net, and bump up your contribution - mitigating potentially, the impact of any tax.
Are you married.. are the couples benefits going to be more advantageous if you adopt an approach other than the obvious one? Also, a point to consider is your age - you don't say how old you are. Don't forget, that by the age of 75 (at the latest) you have to take out a secured or alternatively secured pension anyway, and is age allowance an issue? When your income goes above a certain level, that extra age allowance starts to be raked back. The current income limit is about £21k. If your income from pensions, taxable interest etc. is below this, you get the full higher age allowance. If your income is over that, you'll lose £1 of the higher allowance for every £2 of income above this point.
In essence, whatever the HMRC regs say about this, take proper and considered advice which relates to you. What might be beneficial for one person with one particular set of circumstances, won't always be the best choice for the next.
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OKOC, how about telling us what coutnry you're heading to and whether you'll be working. Maybe someone might know your exact situation. While we're on the subject, anyone know the best way to reduce taxes if one emigrates and joins somebody else's Air Force?
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OKOC,
As most people have suggested, it's a personal choice on what you do. I would suggest getting some good advice before making a decision.
The Forces Pension Society gave a very good presentation at the Financial Resttlement Brief which is well worth attending at your nearest RRC.
Essentially you can elect to do one of 2 things:-
1. Do nothing. Leave your pension to be taxed at UK rates determined by your tax free allowance and pension income. Xaffinity Paymaster will use PAYE coding to determine your contributions. Net pension is then paid into your nominated UK bank account.
2. Fill out form P85 before you leave the UK to apply for Non-Resident status and return to the Tax Office at Cardiff. Cardiff will then issue you a form to fill in and get stamped up by your tax office in the country you have moved to. They will effectively state that you are now paying tax in your new country. This is then returned to the address on the form (Nottingham Tax Office). If all is in order, Nottingham will instruct Cardiff to give you an NT(No Tax) code. This code is then passed on to Paymaster who will start paying your pension income into your nominated UK bank account tax-free.
If you choose option 2 then you will be entitled to claim back all UK Tax paid since the day you left. You do not have to wait 3 years, you only have to state that you intend to reside permanently outside the UK and will not stay in the UK for more than 90 days in any tax year. You can then elect to either continue to have your pension paid into a UK bank account, or if the country you move to is on the Paymaster approved list you can choose to have it paid each month into an overseas account, using the TAPS(Trans Atlantic Payment System).
As discussed in other replies you will need to check out your destination country for a Dual Tax Agreement with HMRC. My experience is for Australia which is part of the agreement.
I have just done option 2 and at time of writing this the whole procedure has taken 7-8 months. Things are obviously subject to change and I would suggest a few phone calls to check on latest procedures at HMRC- Taxation for Non-UK Residents, they were very helpful. Do not call JPAC as they were utterly useless(as expected).
Hope this helps
OnaBeach
As most people have suggested, it's a personal choice on what you do. I would suggest getting some good advice before making a decision.
The Forces Pension Society gave a very good presentation at the Financial Resttlement Brief which is well worth attending at your nearest RRC.
Essentially you can elect to do one of 2 things:-
1. Do nothing. Leave your pension to be taxed at UK rates determined by your tax free allowance and pension income. Xaffinity Paymaster will use PAYE coding to determine your contributions. Net pension is then paid into your nominated UK bank account.
2. Fill out form P85 before you leave the UK to apply for Non-Resident status and return to the Tax Office at Cardiff. Cardiff will then issue you a form to fill in and get stamped up by your tax office in the country you have moved to. They will effectively state that you are now paying tax in your new country. This is then returned to the address on the form (Nottingham Tax Office). If all is in order, Nottingham will instruct Cardiff to give you an NT(No Tax) code. This code is then passed on to Paymaster who will start paying your pension income into your nominated UK bank account tax-free.
If you choose option 2 then you will be entitled to claim back all UK Tax paid since the day you left. You do not have to wait 3 years, you only have to state that you intend to reside permanently outside the UK and will not stay in the UK for more than 90 days in any tax year. You can then elect to either continue to have your pension paid into a UK bank account, or if the country you move to is on the Paymaster approved list you can choose to have it paid each month into an overseas account, using the TAPS(Trans Atlantic Payment System).
As discussed in other replies you will need to check out your destination country for a Dual Tax Agreement with HMRC. My experience is for Australia which is part of the agreement.
I have just done option 2 and at time of writing this the whole procedure has taken 7-8 months. Things are obviously subject to change and I would suggest a few phone calls to check on latest procedures at HMRC- Taxation for Non-UK Residents, they were very helpful. Do not call JPAC as they were utterly useless(as expected).
Hope this helps
OnaBeach
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Beattie said: Al R? How much do you charge for financial advice and can I employ you as my financial advisor? Marvellous response!
You should see me with futures. Mine in particular.
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I believe Oz has a recipricol agreement. I will press to test next month (end of first year in Oz and am using an ex UK advisor now 6yrs in Oz) Oz tax consultant for advice on UK pension. Last year saved me 900Ausd, lets see this year...and I will let you know on here. Military pension is another ball game and I myself have received other advice from pprune, so will follow up both.
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Are we entitled to a tax-free pension if we live abroad?
The short answer is no. Occupational pensions paid by the UK Government to an individual (eg, former RAF employee) are taxed at source in the UK.
Erduso,
You are perpetuating a myth. HMRC will take into account an individuals circumstances. I have chosen, and HMRC have agreed, that my worldwide income is taxed in my country of domicile, New Zealand. This means I only have to deal with one Inland Revenue and includes my RAF pension which is now paid to me gross in the UK and then taxed in NZ.
You are perpetuating a myth. HMRC will take into account an individuals circumstances. I have chosen, and HMRC have agreed, that my worldwide income is taxed in my country of domicile, New Zealand. This means I only have to deal with one Inland Revenue and includes my RAF pension which is now paid to me gross in the UK and then taxed in NZ.
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Erduso
Not so simple. As others have already said, it depends on the Double Taxation treaty between the UK and the foreign country you go to. In the DT treaty with my particular foreign country, I can receive my MOD pension gross if (a) I am resident in said country, AND (b) I take citizenship of said country. I have residency, but not citizenship (at the moment). So I receive my MOD pension net of UK tax. I declare this on my foreign tax return, and they give me a tax credit for that amount.
Not so simple. As others have already said, it depends on the Double Taxation treaty between the UK and the foreign country you go to. In the DT treaty with my particular foreign country, I can receive my MOD pension gross if (a) I am resident in said country, AND (b) I take citizenship of said country. I have residency, but not citizenship (at the moment). So I receive my MOD pension net of UK tax. I declare this on my foreign tax return, and they give me a tax credit for that amount.