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Navigating taxation differences cross-border

This article is part of
Guide to advising overseas clients

However, not all DTAs are the same as each country has a slightly different way of taxing pension income, which means either the home or the host country will become the sole tax authority, and there can be different time limitations on how long any one jurisdiction will have sole taxation rights over an individual.

Ms McKeever adds: “In some cases, the country of residence only has sole taxing rights if tax is actually paid there. For example, if a Briton retires to Israel as a new Israeli resident, they have a 10-year tax holiday in Israel. As they would pay no tax on their pension receipts there, the UK would still be able to tax them under the terms of the DTA.”

Form filling

The administration can be onerous.

For example, people retiring to France must complete a lot of forms. Under the French DTA, pension income should only be taxable in France but this is subject to French scale income tax rates, with a 10 per cent deduction. Pension lump sums are subject to 7.5 per cent.

Pension income is also subject to a social charge of 7.4 per cent, which expatriates can avoid - if they can prove they have paid UK national insurance for the previous two years. To do this, they will need to get Form S1 from HMRC and prove they have not paid French social security in the past, and arrange with the UK pension or annuity provider to pay income gross. And another form is needed - Form FD5 - which should be sent to the local French tax authority.

According to Mr Porter, “It is widely accepted in France that pension lump sums are subject to only 7.5 per cent income tax and 7.4 per cent social charges (which won’t be charged if a Form S1 is present). But the safest way to ensure this tax treatment is obtained is to receive the whole pension as a single lump sum.”

Non-habitually resident taxation

Sun-traps such as Portugal tempting people who wish to retire from the UK but Mr Porter highlights that the country does not have specific favourable pension legislation. However, there are ways to mitigate the tax bill for UK pensioners.

From 2009, the country created a Non-Habitually Resident (NHR) regime, which applies for the first 10 years of tax residence.

As long as your client has registered as a NHR with the tax authorities, and the client’s pension income may not be regarded as Portuguese-sourced income (ie as long as it is a UK company pension scheme or Sipp or registered overseas pension scheme), then no tax is due to Portugal on the pension income for the first 10 years.