Lump sum for a seafarer question

Stolt_2

I am about to receive a lump sum of about $43K (USD) which will be paid into my UK bank account about mid February.
This is from a former employee I worked for about 12 years ago and payable on my 60th birthday.
How this came about was that I'm a former seafaring Captain who served on Norwegian ships for 6 years but still resieded as a resident in the UK.
Because I spent more than 180 days out of the UK / year I did not have to pay UK tax, this was all legal and covered by my then accountant and tax returns submitted correctly to the Taxman...so in essence all above board and signed off on each year.
Just to add I paid a voluntary NI contribution throughout the period I worked on these ships.
Norwegian contributions to thier syestems were also above board and looked after by the Shipping Company.
This lump sum is from the shipping companies own pension scheme and earned wholly for the period of time I spent with them,effectively these contributions were in the package, terms of employment, but not available to me until my 60th birthday.
What I would like to know if I am liable for UK tax on this lump sum when it enteres my account.
I'm still working and under the PAYE scheme for the past 10 years in a shore job.

RichandJ

If the previous scheme is an overseas arrangement then the link below might (big might) help, although I would personally probably see an accountant/pensions lawyer if the administrator of the overseas scheme can't answer your question.

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm13102770.htm

Loughton_Monkey

I was in exactly the same position.

I worked abroad for 6 years. Each year less than 180 days in UK. Completely, openly, and officially not liable for UK tax at all. Continued to pay voluntary Class 3 NI.

As a corollory, I was taxable in Korea and China.

Not only was I paid in $US, but my employer also contributed extra money to [what was called] a 'pension' - but was indeed nothing of the sort. It was simply an extra amount that they channelled directly into discounted Offshore Invesco Perpetual Funds of my choice. This, however, was irrelevant.

All of that money. My accumulated surplus salary. My 'Pension' fund [which was not a pension]. Both of these were legally and officially nothing whatsever to do with the UK taxman. All such money can be legally brought into this country. In fact I left some of it 'offshore' for a while, but the minute you become UK tax resident again, any offshore 'interest' becomes taxable, as (obviously) it does when it is repatriated to an ordinary UK High Street bank.

Just another small 'wrinkle' that may be of use: My understanding is that if that money was directly related to your 'earnings' while not a UK tax payer, you can even legally avoid paying tax on the interest - but only if that money will never come back to UK. So, for example, you could have it paid into some $US account outside UK. Ensure it doesn't 'hit' UK. Go to USA for holidays and spend it there, then all the interest is tax free as well.

Stolt_2

Some fine feed back there Loughton Monkey, very useful information to take note of.
Just picking up on what you wrote, I have had a Slovak bank account in Euros for the past 5 years (it is in fact an Austrian bank based in Slovakia but that’s by the by)..........what if I was to direct this lump sum into this account. Would this be a better option than into a UK a/c.
The bitter sweet to all this is I’m salaried and employed by an international organisation based in the UK, I’m well in the 40% tax bracket which I totally accept, these are the conditions etc, but suddenly to take a such a big hit on this lump sum is hard to swallow, to be fair this cash was never in my retirement plan so I guess there are worse things to moan about.
And in my defence for what it's worth I would never have left the UK shipping industry had we had ships to sail in so my contribution to the establishment would never have faltered had it not been for the demise of the British Merchant Navy.
(I know I'm clutching at them )

jamesd

So, you're 60 and have a lump sum that might (or might not) be taxed at 40%. You could contribute that lump sum into a pension and take 25% of it with no tax. From the rest you could use income drawdown to take an income from investments immediately, as much as the rules allow, which is currently about 5.5% of the capital. You can continue to make pension contributions to other pensions and can continue to work while doing this.

If you think that you might want to retire before any big pensions, like the UK state pension, start, you might also consider starting to take income now from any other UK pensions that allow it, again using income drawdown instead of annuity purchase. You can invest the money in a stocks and shares ISa until you want to use it or can contribute it to another pension to get a second lot of tax relief.

Loughton_Monkey

Stolt wrote: »

Some fine feed back there Loughton Monkey, very useful information to take note of.
Just picking up on what you wrote, I have had a Slovak bank account in Euros for the past 5 years (it is in fact an Austrian bank based in Slovakia but that’s by the by)..........what if I was to direct this lump sum into this account. Would this be a better option than into a UK a/c.
The bitter sweet to all this is I’m salaried and employed by an international organisation based in the UK, I’m well in the 40% tax bracket which I totally accept, these are the conditions etc, but suddenly to take a such a big hit on this lump sum is hard to swallow, to be fair this cash was never in my retirement plan so I guess there are worse things to moan about.
And in my defence for what it's worth I would never have left the UK shipping industry had we had ships to sail in so my contribution to the establishment would never have faltered had it not been for the demise of the British Merchant Navy.
(I know I'm clutching at them )

This is as long as a piece of string.

As I have said, your $43K is utterly 'clean' and will not attract a single penny tax when (if) you 'import' it into UK. It is only the 'miserable' small interest you accrue on it that will get hit for 40% tax while you remain a higher rate tax payer.

If you leave it 'outside' the UK you gain nothing, because now [as I infer] you are firmly back as a UK tax resident the interest is considered as income whether that interest comes from a US bank, and Offshore $US account, or Lloyds Bank Peckham!

By leaving it (wherever) in $US, you are, as you would realise, exposing yourself to the currency risk. To transfer it to a Euro account simply costs you transfer and exchange rate costs, and you still remain with a currency risk. None of us can comment on the currency risk since we don't know what way it's going to go.

So I don't see you have any major issues, other than an 'ordinary' one of being a higher rate tax payer. There are far worse 'issues' than this, believe me!

So maybe the best thing is simply to accept the $43K, converting it immediately to £UK and add it to whatever other savings you might have. Now you can (before April 5th preferably) consider a bit of tax planning and retirement planning. This generally involves using all apprioriate tax breaks afforded by extra pension contributions and/or Stock & Shares (or Cash) ISA's. A good IFA could assist in this.

Stolt_2

Many thanks for your contributions and splendid advice, very sensible suggestions well explained and in detail.
My main UK pension from the UK Merchant Navy becomes active in 6 months time after I had derfered it for 2 years so I'll have to work out what to do next.
It makes me smile, I worked on Norwegian owned ships registered in Liberian, the actual shipping managers were based in Houston, the guy I’m liaising with regarding this cash is in Manila and the bank transfer of the funds will be from the HSBC Bermuda, and to top it all I’m having fish and chips for lunch in Whitby.Feet on the ground or what........
........thanks again, your time in replying to my question is very much appreciated.