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bigduckontax
bigduckontax, Accountant
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I have just returned to live in UK after many years working

Customer Question

I have just returned to live in UK after many years working and living abroad. I have UK government and state pensions that are taxed at source in UK. I worked for an international organization (of which UK is a member), earning a tax free salary, then retired in the country in which I had earned the pension, paying tax on the pension in that country.
The pension rules of the international organization allow the pension to be paid either in the country in which it was earned or in the country where you live ("have your fiscal residence"). On returning to the UK I elected to continue receiving the pension in the country in which I had earned it (which was accepted by the international organization's pensions office) and was accepted by the tax authorities as a non-resident tax payer.
There is a "no double taxation on pensions" agreement between the UK and the other country.
The obvious advantage of this is that I will continue paying taxes on my pensions at a reasonable rate in both countries, whereas if I transfer the overseas pension to UK I will be taxed at 40% on a large part of it. The pensions administrator of the international organization now insists that I must pay UK tax on the pension, even if they continue paying it in the country in which I earned it and therefore continue paying tax in the other country also.
Long experience of working in international organizations has taught me that their administrators are not always as all-knowing as they think they are, so I am in great need of professional advice before I make a very expensive mistake. Is there anyone out there who can give definitive advice on this?
Submitted: 6 months ago.
Category: Tax
Expert:  bigduckontax replied 6 months ago.

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

Before I can fully address the position I need to know the overseas country involved.

If you live in the UK for over 183 days in any one tax year you are subject to UK taxation on your world wide income. Thus the approach by the pensions administrator of the international organisation appears correct. There is a possibility of double taxation which cannot be relieved hence the preamble to my response.

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

Customer: replied 6 months ago.
The international organization is NATO and the country is Luxembourg. There is a specific "no double taxation on pensions" agreement between UK and Luxembourg. Can't find my copy of it just now - still encumbered by unopened boxes etc...
Expert:  bigduckontax replied 6 months ago.

I have already advised that these pensions are taxable income in the UK for IT. However, the Double Taxation Convention, and I have looked at the provisions, between the UK and Luxembourg precludes the same income stream being taxed in both jurisdiction. Thus the tax deducted in the Duchy will be allowed as a tax credit against the UK liability so you do not get taxed twice as might have happened had there been no treaty. The Convention does not, however, protect you from differences in rates of taxation.

I do hope that I have shed some light on the position.

Expert:  bigduckontax replied 6 months ago.

I would be delighted to speak with you by telephone, but it simply is not feasible. I am responding to you from a time zone 6 hours ahead of the UK so the cost would be prohibitive, sorry.

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3096
Experience: FCCA FCMA CGMA ACIS
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Customer: replied 6 months ago.
Looks like the so and so's have won. What is really annoying is that pension briefings before you retire are very big on the question of being able to choose to draw your pension in one country or the other, without telling you that you'll be taxed in both countries. Enjoy your holiday, if that's where you are!
Expert:  bigduckontax replied 6 months ago.

Your are not taxed in both, it is a misnomer as the Double Taxation Conventions ease the load considerably.

When I left one of my employments we had an excellent briefing by Wills Caroon on what to do in the future. Although the rules have now changed I did as advised, refused the pension scheme and funded my own. When all the chips were down my post event appraisal showed I was 5K pa better off not participating in the occupational pension scheme.

Thank you for your support. I have a Thai wife and live there quite a bit!

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