Foreign Pensions - Double Tax Agreements

I have a standard UK personal pension plan in the UK (SIPP), the type that millions of people have and put money into for retirement. It is called a pension, regulated as a pension, and withdrawals from it are taxable income in the UK as a pension, no matter how the money is taken - small regular withdrawals, or less frequent lump sum drawdowns. The pension reforms gave flexibility in how it is taken. The pension provider is given a tax code by HMRC to mandate deductions at source, same as PAYE employment income. As a UK resident, that is perfectly clear. If you move abroad permanently, most double tax agreements have a section covering pensions, so that the country that you are resident in has sole taxing authority, and the UK provides relief from double-tax. Most of these DTAs were written decades ago when the only way you received a pension was a fixed monthly sum until death and were usually (but not always) linked to employment. The heading of the relevant sections say "Pensions" which should be all-encompassing and cover the invested SIPP, but then the old wording casts doubt on the scope. Article 19 of the UK-NZ DTA says this: Article 19 Pensions and Annuities -------------------------------------------------------- (1) Pensions (including pensions paid under the social security legislation of a Contracting State), and similar remuneration in consideration of past employment or services, paid to a resident of a Contracting State, and any annuity paid to a resident of a Contracting State, shall be taxable only in that State. (2) The term "annuity" means a stated sum payable periodically at stated times during life or during a specified or ascertainable period of time under an obligation to make the payment in return for adequate and full consideration in money or money's worth. I've moved to New Zealand permanently and become tax resident there. Can you confirm firstly that the pensions section of the DTA applies to SIPP pensions and lump sum drawdowns from them (whether taken frequently or infrequently), and so provide relief from UK tax ? And secondly, if the SIPP pension provider can be given a zero percent tax code in recognition of the DTA relief ? I'm asking in relation to the New Zealand DTA but most of them are worded similarly. There must be a large number of people in many countries who are already taking SIPP drawdowns from abroad, so HMRC must have an established policy and interpretation. Thank you.

Hi,

Article 17 of the UK/New Zealand double taxation agreement advises that full relief is available for UK pensions/annuities, including trivial commutation lumps sum payments, including state pensions, but not incapacity benefit. To claim tax relief on your pensions, you will need to complete 'DT indiviual UK/New Zealand', which can be found here:

Double Taxation: UK-New Zealand (SI 1984 number 365 and protocols) (Form New Zealand-Individual)

Please complete all relevant sections of the form, declaring your pensions and send the signed and dated form to the New Zealand tax authorities. The New Zealand tax authorities will review the form and validate it with an official datestamp and the signature of an authorised individual. They will return the form to you, for onward transmission to HM Revenue and Customs.

Thank you.

I have a stakeholder pension plan in the uk, but am austria resident. Could you please advise on the status of a) partial encashment and b) drawdown , in relation to the 2019 uk/austria dta ? ie which clause applies to a) and which to b) ? ie 17.1 ``pension in consideration of previous emplyoment`` or 17.2 `` lump sum derived from a pension scheme`` or ``other income``. Very many thanks

Hi Jon Carter,

Article 18 of the UK / Austria DTA, covers pensions.  
Paragraph 18.1 advises that pensions and other similar remunerations paid to a resident in Austria, from past UK employments, shall only be taxable in Austria.  
Paragraph 18.2 advises that lumpsums, including trivial commutation lumpsums paid to a resident in Austria, from past UK employments, shall only be taxable in Austria.

Thank you.

Thank you. I think I understand the intent of 18.1 18.2 , actual text, does not refer to ``from past uk employments`` but refers to a `pension sceme.` My plan was private, set up with the provider (stakeholder plan). Is this covered by this clause ? You state lumpsums in the plural . The actual text in english is ´lump sum´ singular, and the german text refers to ``einmalzahlung`` which could be construed as `one-time payment``. Can I be sure that the agreed intent was to cover the possibiltiy of multiple ´lumpsums´ ? Thankyou

Hi again Also, in clause 18.2 the actual text states that the lumpsum shall be taxable ``only in the first mentioned state`` ie the state where the pension scheme was establshed, which in this case is the UK. Please confirm. Thankyou

And , one more note, the article covering Pensions in the 2018 Austria/ UK DTA which I have seen, is Article 17, not Article 18, which covers `´Government Service``. So, Pensions are 17.1 and 17.2 , not 18.1 and 18.2 Is this correct ? Thankyou

Hi Jon Carter,

Answers to your 3 qustion are listed below.

The double taxation agreement was recently updated on 01/03/2019 and the pension article changed from 18 to 17.  
Article 17.2 also changed and advises that lump sum payment are now taxable in the UK and not Austria.

Clause 18.2 has changed following the update of the agreement and now lump sum payments are taxatble in the UK.

Following the update of the double taxation agreement, one of the article was removed and those below it moved up 1, meaning the pensions article changed from 18 to 17.

Thank you.

Hi I am a UK resident and have a SIPP. In my Expression of Wish Form, I have nominated my nephew as a beneficiary in the event of my death. My nephew lives and works in Dubai and has done for 15 years. He is married and has a child there and owns a house there. He has no ties at all with the UK, other than being born here. I am aware of the UK tax rules for pensions if I die pre 75 and post 75. However, if I die after 75 will my nephew still be able to receive money from my pension tax free? Either because he is non-UK resident/domiciled or as a result of the UK UAE DTA? Many thanks 

Does a UK resident with a pension from the USA have to declare this income on his UK tax return and pay tax in the UK, whether drawdowns are regular or irregular? If regular (e.g. monthly) pension income is taxable, do references in the DTA to lump sums (not defined), which it states are specifically not taxable in the UK, refer to irregular payments (nil, one or two per annum) or only to tax-free lump sums i.e. the equivalent of the 25% tax-free lump sums avaiable from UK pensions?

Hi CIG1 Grant,

We are unable to comment on future events as legislation may change.
Based on current legislation, he would need to apply to have the pension paid tax free by submitting a double taxation exemption claim.

Thank you.

Hi Tom Hart,

Article 17(2) with reference to Article 1 (4) if you receive a Lump Sum Pension and you will not receive any further payments from that pension scheme
then this will be classed as a one off lump sum payment and will be taxable only in the country that the payment arises.            
If paid from a USA company then remains taxable in the USA even if you are a resident of the UK and vice versa. 
This type of pension should be noted as additional informatoin on your return only and refer to the specific Double Taxation Section.                                                                                            If you receive regular payments, these need to be declared on your tax return as foreign income, if tax has been deducted in the USA, you can claim this as foreign tax credit relief.

Thank you. 
                
 

I wrote previously concerning article 17.2 of the current austria / uk tax treaty. Noticing your response to the previous post re usa , could you tell me whether ``a lump sum`` in the uk / austria treaty art 17.2 refers to a one-off outward payment of all funds in the pension or refers to each instance of any number of withdrawls charachterised as lump sums ( eg partial encashments of ´uncrystallised funds´ ) ? Many thanks

Hi
Lump sum refers to withdrawing a large payment usually as a one off payment.
If you receive monthly/quarterly payments then this is not a lump sum.

thankyou . So, if for example, a minimum withdrawl was made in tax year 1, and the large remaining balance totally withdrawn the following year, would this ´final´ withdrawal be a dtt article. 17.2 lump sum ? thanks

Hi Jon Carter,
Yes, such a 'final' withdrawal would be regarded as a DTT 17.2 lump sum.    
Convention
Thank you. 

Thank you. A further question if I may. If a minimum withdrawal was made in tax year 1, a second withdrawal of half the remaining balance made in year 2, and a ´final´ withdrawl made in tax year 3, would that ´final´ withdrawal in tax year 3 be regarded as a DTT art. 17.2 lump sum ? Thanks

Hi Jon Carter,
Only if the conditions at 17.1 are not met.
Thank you. 
 

Thank you. re, Art. 17.1: ``pension and other similar remuneration in consideration of past emplyment`` I assume this article does not include a private self-invested , so called ``contracted out of serps´´type of pension scheme (with no employer contributions) Am I correct? Thanks

Hi Jon Carter,
To confirm you are correct. 
Thank you.