Foreign Pensions - Double Tax Agreements

Thank you , one final question for now, if I may, re. Article 17.5 (quote) ``For the purposes of this Article, a pension scheme is recognised for tax purposes in a Contracting State....`` Q. does this Art. 17.5 definition of ``a pension scheme (is) recognised for tax purposes`` also define the ´pension scheme` referred to in article 17.2 ? Thanks

Hi Jon Carter,
A resident of Austria, who has a UK generated pension (non government) is taxable on that pension and trivial commutation lump sum in Austria.
Article 17(5) defines a pension scheme for tax purposed and this is applied to the whole of article 17.
Thank you. 


 

I elected to do QROPS transfer to avoid all the difficulties of interpretation around the DTAs. It you move abroad permanently you should think about it and investigate it further.

Re. dta austria / uk. If a payment from a pension is a 17.2 lump sum , it is taxable only in the UK . this is clear. Am I correct in assuming that because it is only taxable in the UK , it is not taxed at all in Austria ? Or does article 21 1b apply, ie. `exemption with progression` on the Austrian side ? Many thanks .

Hi Jon Carter,
Article 21 1(b) of the Double Taxation Agreement between the UK and Austria does state that any income exempt from tax in Austria may be taken into account when calculating tax due.
You should check this with the Austrian tax authorities as we cannot give you advice on how a foreign country will tax you.
We can only give advice on UK taxation.
Thank you. 

Hi Jon, My understanding (and you will still need to check) is that the Austrian tax system is similar to the German system in this regard and yes, you would need to declare income exempted from Austrian tax by a DTA for the purpose of setting the rate at which you pay tax on your income that is taxable in Austria (Progresionsvorbehalt in Germany). In simple terms, your tax rate is set by reference to your worldwide income, irrespective of whether all of that worldwide income is actually taxed in the country.

Many thanks to HMRC Admin 25 and Gary C. Very helpful indeed.

is there a standard detailed method used to calculate exemption with progression tax ? I have come across two different methods... thanks

I am not sure I understand the question. But I think you might be looking at the Befreiungsmethode and the Anrechnungsmethode. The DTA exempts the pension from Austrian tax (shall be taxable ONLY in the paying state). This is the Befreiungsmethode (Progressionsvorbehalt). You'll need to find the page as we cannot post links on here but the BMF website explains things and tells you how to report the foreign pension income: "Wie wird die Doppelbesteuerung unter Anwendung der Befreiungsmethode (Progressionsvorbehalt) vermieden? Auslandseinkünfte aus einer nichtselbständigen Tätigkeit oder ausländische Pensionsbezüge sind dann in Österreich unter Progressionsvorbehalt steuerbefreit, wenn dies auf Grund eines Doppelbesteuerungsabkommens zwischen Österreich und dem jeweiligen Quellenstaat geregelt ist. Die ausländischen Einkünfte selbst werden bei Anwendung der Befreiungsmethode in Österreich nicht besteuert. Da Österreich bei hier ansässigen Personen das Besteuerungsrecht auf das Welteinkommen hat, sind die ausländischen Einkünfte bei der Ermittlung des Steuersatzes zu berücksichtigen, der auf die in Österreich steuerpflichtigen Einkünfte anzuwenden ist. Da die ausländischen Einkünfte in Österreich nicht besteuert werden, ist eine Anrechnung der ausländischen Steuer nicht möglich. Tragen Sie diese Einkünfte, die bei der Ermittlung des Steuersatzes im Rahmen der Anwendung des Progressionsvorbehaltes zu berücksichtigen sind, in die Kennzahl 453 ein, und im Falle von Pensionsbezügen diese nochmals in die Kennzahl 791. Bitte geben Sie auch in der Kennzahl 493 die Werbungskosten bekannt, die in der Kennzahl 453 bereits abgezogen wurden. "

thanks. Q: to hmrc : a key factor in austrian tax calculations is the amount of contributions made to a uk private pension plan. Q: Is it possible for hmrc to provide a statement of contributions to an old pension plan dating back to the 1980s ? If so, whom should I contact ? thanks

Hi Jon Carter,

If referring to the point that you start paying higher rate tax. please refer to Income Tax rates and Personal Allowances 

Thank you.



 

Hi Jon Carter,
No, HMRC does not hold information of this nature.
You would need to contact the pension provider for this information.
Thank you. 

Thankyou. A further question. I withdrew a small amount from my uk private pension last year. I may, this year, withdraw approx. half of the remaining balance. I assume that , as this withdrawl would not be a full and final withdrawl and therefore not a DTA art. 17.2 lump sum, that this ( relatively large) withdrawl would be taxable only in austria (under DTA article ´other income´). Am I correct ? thank-you.

Hi Jon Carter,
A pension lump sum is an amount of money that you can take from your pension in one go.
Article 17(2) of the UK / Austria tax treaty
UK/Austria Double Taxation Agreement
Advises that lump sum payments made from a UK pension, to a resident in Austria, will only be taxable in the UK.  
Thank you. 

 

thank you for your reply. This is exactly the point of my question, Is an ´intermediate´ payment from a private pension scheme, ie a payment which is NOT a final payment which empties and closes the pension account, regarded as a lump sum under dta article 17.2 ? If it is not a lump sum, the dta says it is taxable only in Austria, not the UK

Hi,

A lump sum is not legally defined and is therefore a matter of interpretation. HMRC's position is that a lump sum is any payment that is not a periodic payment. This may not empty the pot, and a taxpayer may have more than one lump sum payment. 

For example, if an individual receives monthly pension payments and then takes out a larger payment as a 'one off' from the same pension pot, whilst continuing to receive regular monthly pension payments, then this one off larger payment can be considered a lump sum as it is not a regular periodic payment.

Thank you.

Thankyou But if, for example, the austrian tax authority were to interpret the article differently, and maintain that such a withdrawl is NOT a 17.2 lump sum, what then happens ? Do they apply the ´credit system´ , to stop double taxation occuring ? very many thanks.

Hi,

Article 17(2) advises that pension lump sums from a UK pension scheme, paid to a resident of Austria, are only taxable in the UK.

 UK/Austria Double Taxation Agreement

The double taxation agreement is written both in English and German and is reciprocal.  

Article 21(1)(a) of the agreement states that where an Austrian resident is taxed in the UK, Austria will allow as a deduction from the tax on the oncome of that resident, an amount equal to the tax on income or capital gains tax paid in the UK.  If Austria tax you on the pension, then you can claim a tax credit of up to 100% of the UK tax paid.

Thank you.

Thank you. According to the DTA , if UK only taxes ( eg lump sum art. 17.2), then Austria should apply the exemption with progression method. But you seem to be saying that they will credit the uk tax paid against Austrian tax due. Which of these two procedures is the correct one? thank you .

Hi,

As it is UK income, you will automatically be taxed here. Under the terms of the DTA, Austria can also tax you but if they do, you can claim credit for the UK tax paid, so that technically no actual tax would arise in Austria.

Thank you.