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bigduckontax
bigduckontax, Accountant
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I was a resident of Nigeria till Dec 2014. During that time

Customer Question

Hi,
I was a resident of Nigeria till Dec 2014. During that time I was receiving an annuity in UK from past employment with a UK company as an expatriate in various parts of the world.
Every year for the last 4 years I have contacted the UK tax office over the telephone give my residential address in Nigeria and the Tax office agree to change my tax status to NT.
A few days ago I received a letter from the same tax office stating that all these years my NT tax status has been wrong and that according to the Double Taxation treaty between UK and Nigeria I should have been taxed in the UK all these years and not in Nigeria.
Can you help?
Submitted: 5 months ago.
Category: Tax
Expert:  bigduckontax replied 5 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to ba able to help you with your question.

Annuities are normally taxed in the country of origin. What should have happened is that the annuity should, after the application of your UK Personal Alowance, been taxed. You would also have had to declare it to the Nigerian Tax authorities. Under the Double Taxation Treaty between the UK and Nigeria the same income stream cannot be taxed in both jurisdictions. This is achieved by means of tax credits, the tax paid in one country being allowed as a tax credit aginst the liability in another. That is what should have happened.

So HMRC did not tax your annuity, but Nigeria did. Therefore the tax paid in Nigeria is allowable as a tax credit against the UK liability, if any. Although these treaties do not protect you against differences in rates of taxation in the end when it all comes out in the wash so to speak it will end up as being an exercise in financial futility.

The letter shows a typical lack of understanding on how taxation and Double Taxation Treaties actually oprate. Your annuity would be taxed in Nigeria irrespective of its taxation in the UK, if any. Depending on the level of the annuity you might have no or minimal exposure to UK taxation anyway.

I do hope that I have been able to shed some light on this murky area for you.

Customer: replied 5 months ago.
DearCustomerThanks for your quick reply. In Nigeria I was actually "Over taxed" because regardless to what treaties say Nigeria taxed on deemed income which was substantially higher to the income actually received.
I am no longer in Nigeria. I am currently residing in Indonesia.
Can the UK tax office force me to pay these taxes with penalties? How can I defend myself?
For Info the annuity is about STG30,000 per year. It is from a fund that I invested to as an expatriate when I was working around the world (not UK).
It sounds very odd to have to pay taxes on such annuity. How can I go about this in order to minimize my risk and cost?
Expert:  bigduckontax replied 5 months ago.

It is not odd, it is perfectly normal. Once receives tax relief on contributions to pension plans, but when they pay out the benefoits are taxed as income.

There is nothing you can do about it save ensure that your personal allowance is set against this source of icome.

I am so sorry to have to rain on your parade.

Customer: replied 5 months ago.
Hi Keith,What you seem to be implying is that now I would have to be taxed twice no matter what. Is there a way I could appeal this?Also, I am not sure about my employers contributions but my contributions to this fund were vertainly from funds already taxed.Thank you for your comments
Expert:  bigduckontax replied 5 months ago.

Sorry none whatsoever; the double taxation is relieved by the Treaty. Paying into pension funds from taxed income is perfectly normal, it is done by the majority, if not all, contributors. Tax relief is given by contributions being made net and the balance claimed from HMRC by the pension provider.

Please be so kind as to rate me before you leave the Just Answer site.

Customer: replied 5 months ago.
34;Tax relief is given by contributions being made net and the balance claimed from HMRC by the pension provider."
I am sorry I do not understand the above statement. Kindly provide an example with numbers. Thanks
Expert:  bigduckontax replied 5 months ago.

You pay say 80 quid to your pension provider, usually an insurance company, and they claim the other 20 from HMRC. In that way you obtain tax relief at the basic rate by paying your contributions net. The company gets the full 100 pounds.

Customer: replied 5 months ago.
Got it thanks
Expert:  bigduckontax replied 5 months ago.

Delighted to have been of assistance.

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