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Sam, Accountant
Category: Tax
Satisfied Customers: 14154
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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I am about to receive a final salary (local government) pension.

Customer Question

I am about to receive a final salary (local government) pension. I am going to buy a villa in Menorca with the lump sum. The pension fund use Western Union commercial to do any transfer. I have a deposit account in Spain but no current account since I am not yet a resident. My understanding of my options is that I could get my entire lump sum sent to Spain, buy the villa and move everything to Spain. I understand that if I am not a resident when I do the actual purchase I will not have to pay income tax on the lump sum. Alternatively I could get the lump sum payed into my UK bank and then transfer what I need when I need it (but then I might pay more for the transfers, one for the deposit and one for the actual purchase). Is there an obvious winner? The lump sum should be about £130,000. Cheers.
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi Thanks for your question I am afraid your understanding of the lump sum situation is incorrect as you always going to remain liable to tax on this lump sum due to the fact it arises in the UK even if you are not a resident of the UK at that time. Sop it makes no difference when and where it is paid, or whether you are resident in the UK or not. Thanks Sam
Customer: replied 2 years ago.
Please explain since all documentation I have read refers to the lump sum from the pension as being tax-free. Your comment is the first time this has ever come up.
Customer: replied 2 years ago.
Just to be clear, the lump sum is the 25%, no more.
Expert:  Sam replied 2 years ago.
Hi if the lump sum is just 25% of the total pension pot and you are at least aged 55 then you are correct this is tax free Thanks Sam
Customer: replied 2 years ago.
Yes, I am 58 and I have a final salary scheme which cannot be plundered beyond the 25%. So, my questions still stand, is it better to send the lump sum to Spain before I become a resident or should I hold it here and send it as I need it. My understanding is that if I send it I will only have to pay tax on any income I receive after I become a resident. Until then I am only liable to income tax in the UK (I won't have any income originating in Spain). Is this all correct. If so, then my understanding is that I can transfer to lump to Spain, use it to buy the property, and then become a resident. At that point I can get my pension income sent direct to Spain and only be liable to Spanish tax. Do you think this makes sense?
Expert:  Sam replied 2 years ago.
Hi Thanks for your response and a full picture of your position - much appreciated.I assume then you make reference to the 75% lump sum that remains (as the 25% is tax free however you release it) I am afraid any transfer of this lump sum other than to another pension position will see it fully liable to tax - whether you are resident or not in the UK (as it will arise in the UK) And if you are then remitting this money into Spain - then they will want to know of this, and will seek to establish tax due (as a Spanish resident) but as we have a double taxation treaty with Spain - any UK tax suffered is taken into account so you are not charged tax twice on the same money. So1) there is no avoiding UK tax - as the money arises in the UK and the pension company are legally obliged to tax it 2) if you are then resident in Spain then they will need to be aware of this income coming into their country and any tax they deem to be due - will be offset by the UK tax suffered under the Uk - Spanish double taxation treaty. My advise (and I am not a financial adviser which I am sure you can appreciated and I do recommend that you seek advise from one) is that if you plan to empty the whole pot and are not going to place the 75% taxable element into another pension arrangement then as it will be subjected to UK tax at source - then release it in the UK - and then whatever you then take into Spain has already been taxed whilst you were a resident and domiciled in the UK and BEFORE you became a resident in Spain. Let me know if I can assist any further ThanksSam
Customer: replied 2 years ago.
I am not touching the 75%, mine is a local government pension which I can't touch at the moment. I do understand your advise you have given. Thank you.
Expert:  Sam replied 2 years ago.
Hi I am getting a lil confused here - but the 25% remains tax free in the Uk whether you release it pre or post move to Sapin - Hope that helps ! ThanksSam