HMRC has now had further discussion with the Belgian tax authorities. This response will provide further details on the taxation of Belgian State pensions as well as the options available for those who are affected by the issue.
Treatment of pensions in UK/Belgium Double taxation agreement (DTA)
Under the pre-2013 DTA, all pensions (apart from Government-service pensions) were taxable only in the country in which the recipient was resident. This changed from 1 January 2013 so that all pensions (apart from Government-service pensions) became taxable only in the country in which the pension arises (that is, the country from which the pension is paid).
Pensions that were already being paid prior to 1 January 2013 are dealt with by a “grandfathering clause” in the amended DTA (sub-paragraph (b) of Article 18).
You can find the full text of the UK/Belgium DTA here:
Belgium: tax treaties
The ”grandfathering clause” in sub-paragraph (b) of Article 18 applies to pensions and other similar remuneration “under a pension scheme”. This does not include State pensions.
The definition of a UK pension scheme explicitly excludes State pensions (or “social security pensions”). Although the corresponding Belgian definition is not as explicit, the Belgian tax authorities have confirmed that a Belgian State pension (which they refer to as a “first pillar” pension) does not meet the conditions and is therefore not considered to be a pension constituted under a pension scheme.
While both governments had intended a different outcome from the 2013 protocol (as is clear from the explanatory notes of both governments), the unfortunate reality is that the intended outcome was not achieved by the legal drafting. This means that both the UK and Belgian tax authorities are legally obligated to apply the actual terms of the agreement.
The realisation of this error coincided with new rules in Belgium that require all non-residents to submit tax returns in Belgium if they have any Belgian-sourced income (that is, income that arises in Belgium). That has led to the Belgian tax authorities implementing this change for the Belgian tax year 1 January 2019 to 31 December 2019. It should be noted that under Belgium’s domestic law, they are able to assess earlier years if they make a specific intervention, though we have seen no reports of this having happened where the only Belgian-source income has been a State pension.
For 2020, 2021 and future years, Belgium will be taxing all Belgian State pensions received by UK-residents regardless of when they were first paid. That income will not be taxable in the UK.
What you should do if you have been receiving a Belgian State pension
It is likely, at this stage, that you have only been taxed in Belgium on your Belgian State pension from the Belgian tax-year 1 January 2019 to 31 December 2019. However, we understand from the Belgium authorities that they can also assess the income for the tax-year 1 January 2018 to 31 December 2018.
You do not need to wait for a further assessment from Belgium to reclaim the UK tax paid on your Belgian State pension for the past 4 years. You should therefore make a claim for repayment of UK tax for the following years:
- 6 April 2017 to 5 April 2018
- 6 April 2018 to 5 April 2019
- 6 April 2019 to 5 April 2020
- 6 April 2020 to 5 April 2021
You can claim a refund up to 4 years after the end of the tax year to which it relates. You can find details of how to make a claim here:
Claim a tax refund