Tax on pension when living abroad

9jdm

I have the option of receiving my company pension early. It is uk based but I am currently living abroad. (Eurozone). My question is will I still be eligible for the tax free lump sum and where will I pay tax on the monthly income - in the UK or my country or residence. Many thanks.

xylophone

https://www.gov.uk/tax-uk-income-live-abroad/overview

jamesd

You are eligible for the tax free lump sum in terms of UK tax but the place of your residence may not have that as a tax free lump sum so it might be taxable there.

Your country of residence and tax treaty status matters a lot.

For example, Portugal has a scheme where you can register to have foreign pension income taxed at 0% and has a tax treaty with the UK that says the tax at country of residence applies, so you can claim relief for all UK income tax if you have signed up to this scheme. The 75% of a pension pot that can be taken as taxable income is income for this purpose.

Portugal is not the only place with favourable tax treatments, other places may not have any specific scheme but may have lower normal tax rates and a tax treaty.

If your company pension is defined benefit like final salary it is usually a bad financial choice to take it before normal retirement age. this is because the reductions in income level normally make it more expensive to do this than to borrow money on say a mortgage instead. This logic does not apply to defined contribution schemes, the ones where you have individual pots and investments controlled by you.