Taking tax free 25% when living abroad

neubad

I do not pay tax in the UK but i do have a SIPP. How can i avoid being taxed in the UK when i withdraw my 25% tax free lump sum? Is there any official body i can speak to about this?

HappyHarry

neubad wrote: »

I do not pay tax in the UK but i do have a SIPP. How can i avoid being taxed in the UK when i withdraw my 25% tax free lump sum? Is there any official body i can speak to about this?

You won't be taxed in the UK when you draw your 25% tax free lump sum. Why do you think you will be?

You may be taxed in your country of residence, but you will need to speak to a local tax professional to establish what, if any, tax you will need to pay.

Joey_Soap

Look up the dual tax treaty for the UK and the other country. That gives you the definitive answer.

Malthusian

Joey_Soap wrote: »

Look up the dual tax treaty for the UK and the other country. That gives you the definitive answer.

Not in itself. Dual tax treaties will say, in so many words, that tax you pay in one country can be credited against your tax liability in another. That doesn't tell you whether you have a tax liability in the first place on payments from overseas pensions.

Any dual taxation treaty is likely to be irrelevant because the OP will not be taxed on the pension commencement lump sum in the UK (best not to talk about "tax free") and will have nothing to credit against any tax liability in his country of residence.

EdSwippet

Malthusian wrote: »

Dual tax treaties will say, in so many words, that tax you pay in one country can be credited against your tax liability in another. That doesn't tell you whether you have a tax liability in the first place on payments from overseas pensions.

Double taxation treaties often say a lot more than merely that foreign tax can be credited. In fact, a foreign tax credit is far more often simply covered by local tax laws than it is by treaty. The UK will generally give a foreign tax credit for all foreign taxes paid, even to countries with no double taxation treaty with the UK.

In contrast, a treaty might well state which country may and which may not tax pensions specifically. For example, from the US/UK tax treaty, the one I'm most familiar with (and not generally applicable to the OP unless they are US resident):

ARTICLE 17
Pensions, social security, annuities, alimony, and child support
1. (a) Pensions and other similar remuneration beneficially owned by a resident of a Contracting State shall be taxable only in that State.
(b) Notwithstanding sub-paragraph a) of this paragraph, the amount of any such pension or remuneration paid from a pension scheme established in the other Contracting State that would be exempt from taxation in that other State if the beneficial owner were a resident thereof shall be exempt from taxation in the first mentioned State.
2. Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State.

Pretty clear that for a US resident, regular UK pension payments are taxable only to the US. And vice versa (where the UK resident is not also a US citizen, and so avoids entirely the US's spiteful 'saving clause' that eviscerates a lot of the treaty for US citizens living in the UK).

That said, interpreting tax treaties is a bit of a dark art; they are never a model of simplicity. Making sense of one takes some practice, so best not attempted without a lot of time and patience. The most direct approach is to find a paper written by someone who has already done the work of interpreting it.

Joey_Soap

OK, I can only speak from my own experience, we do not know where the OP is resident. So, the first thing to do, is to see if there is a tax treaty in place with the UK, which is very likely indeed. Second thing is that we DO know the 25% is not taxed in the UK. However, we do not know whether a pension is taxable in the country of residence, we do not know what that country is. I have looked at two tax treaties recently and both of them clearly say that a pension is taxed in the country of residence. It really cannot be much clearer than that. So, my advice still stands - check the tax treaty first. It is very likely that the answer is in there.