Pension withdrawals from UK pension above the LTA while not a UK tax resident

John, currently a UK tax resident, previously had a private pension pot with a value exceeding his LTA and with no previous withdrawals. During the current tax year, he withdrew a lump sum equal to 25% of his LTA (leaving in the pot the remaining 75% of the LTA plus the excess over the LTA). From April 6, John intends to become a tax resident of an EU country with a double taxation agreement with the UK and will not be a tax resident of the UK (subject to satisfying the requirements of the Statutory Residence Test for the tax year). Under the Double Taxation agreement, his new home country of residence, and not the UK, will tax any future pension withdrawals he makes while resident there. I assume that withdrawals from the remaining 75% of the LTA will not be taxed in the UK (presumably a “no tax” code will be issued by the HMRC so the pension withdrawal can happen with no UK tax withheld) and John will only be taxed by his new home country. However, what happens with subsequent withdrawals from the remaining excess over the LTA (which, for UK tex residents, are subject to 55 or 25% tax)? Will there be UK tax withheld by the pension administrator before either lumps sum or regular withdrawal payments are made to John while he is not a tax resident of the UK? If so, how does the pension administrator know what amount to withhold, etc?

Hi pjb12345,

Any pension withdrawals will still be taxed at source by the pension company at the rates specified. as a non resident.

You will then need to apply for relief under the double taxation agreement for any relief that may be due.

If this is not an going pension and payments are taken periodically, a new claim will need to be submitted each time a withdrawal is made.

A code of NT cannot be issued prior to making an irregular withdrawal. 

Thank you. 




 

The “UK/GREECE DOUBLE TAXATION CONVENTION” (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/498354/1953-greece-dtc_-_in_force.pdf) stipulates in Article X(2) that: “Any pension (other than a pension of the kind referred to in paragraph (1) of Article VIII) and any annuity, derived from sources within the United Kingdom by an individual who is a resident of Greece and subject to Greek tax in respect thereof, shall be exempt from United Kingdom tax.” So, if John is a Greek, and NOT a UK, tax resident when he receives either lump sum or regular pension distributions from his UK pension (not a government pension), according to the treaty he should NOT be taxed by the UK and should only be taxed by the Greek tax authorities. So, your reply to the initial post that “Any pension withdrawals will still be taxed at source by the pension company at the rates specified as a non resident. You will then need to apply for relief under the double taxation agreement for any relief that may be due.” would result in the UK taxing John unlawfully since taxation by the UK contravenes the Convention. So, why would the HMRC not issue a “no tax code” (assuming that John can demonstrate that he is a Greek, and not a UK, tax resident) so that John can receive an untaxed distribution from his pension provider and then he pays the lawful tax due in Greece? Any other outcome would not be fair or lawful. Please explain why not if you disagree.

Hi pjb12345,

A tax code cannot be issued until a source actually exists.

The source is not normally notified to HMRC until a payment has actually been made and as such, the pension company automatically operate PAYE against this and make a tax deduction.

This is when the claim is then required to have a refund issued which meets the requirement of the DTA by confirming no tax is paid in the UK.

HMRC are not acting unlawfully by taxing the pension prior to receiving a claim under DTA agreements.

Thank you.