Pensioner with income from property abroad

mr1974

Hi all,

My mother has moved definitively (i.e. she is ordinarily resident) to the UK. She's got an income from renting a property abroad. She's 74.

What's the limit she can earn before having to pay taxes?
I read on the Inland Revenue website that she has an allowance of 7090, and then the various tax bands start.

Say she got £10000, does she mean she will have to pay:
) for the first 7090
10% for the next £2090 = £209
22% for the remaining £820 = £180.4
total = £389.4
???

She's also got a state pension (for £4000 per year), which is already being taxed abroad. I haven't included it in the above calculation as, as I understand it, that wouldn't count as it is being taxed abroad. Am I right on this?

The amount of tax she has to pay may well affect if we decide to keep it under her name, or invest somewhere else.

Thanks for any input.
MR1974

Cook_County

1. Where is she domiciled?
2. Which country is the pension paid from?
3. Is the pension or rental income remitted to the UK?
4. Is there foreign tax paid on the pension or rental income?

mr1974

Cook_County wrote:

1. Where is she domiciled?
2. Which country is the pension paid from?
3. Is the pension or rental income remitted to the UK?
4. Is there foreign tax paid on the pension or rental income?

Thanks for your reply.

1. In the UK
2. Italy
3. Yes
4. Foreign tax is paid on the pension, but not on the rental income

Does it really matter if tax is paid abroad? I thought we had to pay tax in the UK nevertheless

mr1974

mr1974

mr1974 wrote:

Thanks for your reply.

1. In the UK
2. Italy
3. Yes
4. Foreign tax is paid on the pension, but not on the rental income

Does it really matter if tax is paid abroad? I thought we had to pay tax in the UK nevertheless

mr1974

Also another question is about the pension itself. It is paid into an italian account.
We may keep it in Italy for our expenses when on holiday there, rather than transfer it to the UK. How would that affect the above mentioned calculations?

Thanks for any help
mr

mr1974

Cook_County wrote:

1. Where is she domiciled?
2. Which country is the pension paid from?
3. Is the pension or rental income remitted to the UK?
4. Is there foreign tax paid on the pension or rental income?

I've just found this specification:

"Under many double taxation agreements pensions paid for Government service are taxed only in the country which is paying the pension."

Now does that mean I have to completely ignore the pension for calculating the amount of tax to be paid i.e in my calcs above the pension income is eating up part of the £7090 allowance, even though tax has already been paid on it!

Thanks
mr1974

Cook_County

I note that your mother is domiciled within the United Kingdom. Consequently she is taxable in the UK on worldwide income and gains, whether or not brought to the UK.

Her pension and rental income is therefore taxable in the United Kingdom.

Most double taxation treaties state that pension income is taxable in the country of residence for domiciliaries of that country. However, as you rightly state pensions paid for government service are normally taxed only in the paying state. If this is the case then the rental income and government pension are taxable in Italy.

The treaty exemption for the government pension would however have claimed on UK tax returns (and does not seem to apply for pension credit purposes, although this is not free from doubt).

The Italian tax on doubly-taxed rental income would be claimed as a credit in the UK.

I assume that you have made arrangments to cover succession rules in Italy and UK inheritance tax.

mr1974

Cook_County wrote:

I note that your mother is domiciled within the United Kingdom. Consequently she is taxable in the UK on worldwide income and gains, whether or not brought to the UK.
Her pension and rental income is therefore taxable in the United Kingdom.

OK

Cook_County wrote:

Most double taxation treaties state that pension income is taxable in the country of residence for domiciliaries of that country. However, as you rightly state pensions paid for government service

Her pension is not paid for government service. She paid contributions when she was a sole trader then she got a "state" pension, after 35 years.

Cook_County wrote:

are normally taxed only in the paying state. If this is the case then the rental income and government pension are taxable in Italy.

The pension is definitively being taxed in Italy, as tax on it is detracted at source.

Cook_County wrote:

The treaty exemption for the government pension would however have claimed on UK tax returns (and does not seem to apply for pension credit purposes, although this is not free from doubt).

I am not sure I with you here...

Cook_County wrote:

The Italian tax on doubly-taxed rental income would be claimed as a credit in the UK.

Why doubly-taxed?

Cook_County wrote:

I assume that you have made arrangments to cover succession rules in Italy and UK inheritance tax.

No, I haven't but I guess I should. Would I have to pay attention to rules in both countries?
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