Pension held overseas - taxable?

rudkilou

My husband and I both took out private pensions whilst living in Switzerland a few years ago, naively thinking we'd stay there forever. We've been back in the UK 3 years now, and continue to pay into the scheme. We can withdraw, but will barely get back half of what we've paid in. But, I'm now concerned that we will be hit with tax when the pension eventually pays out in 25 year's time. Basically, we took the policy in good faith, and now realise we might have made a bum decision, and it may be a really really expensive mistake.

Before I shell out on a financial adviser, can anyone tell me if the pension will be taxed, and at what likely rate? And what I can do for the best.....

Aegis

Is it actually a pension, or were you sold some sort of overseas investment bond by a financial salesman? 50% drop is extremely high, making me think it's more likely to be something where the losses may have been caused by the sales commission funded from establishment charges. This is made more likely when you mention that you are still paying into it now - funding an actual pension might not be a possibility as a non-resident.


If it's one of those, it may be worth cutting your losses now, as they rarely seem to be a good idea to retain. Worth an analysis, whether you do it yourself or get an adviser to do it for you, though obviously the latter has additional costs and may just tell you that you should surrender it at a loss.

bostonerimus

The taxation of cross border pensions is governed by domestic law and the appropriate bilateral tax treaty. That usually means that regular income from a pension in one country is only taxable in the country where the person getting the income is tax resident. So for your Swiss pension you will have to declare the income on a UK self assessment and pay UK income tax on it. For lump sum distributions you'll have to pay Swiss tax.

Aegis

bostonerimus wrote: »

The taxation of cross border pensions is governed by domestic law and the appropriate bilateral tax treaty. That usually means that regular income from a pension in one country is only taxable in the country where the person getting the income is tax resident. So for your Swiss pension you will have to declare the income on a UK self assessment and pay UK income tax on it. For lump sum distributions you'll have to pay Swiss tax.

This is good advice if it's an actual pension, but based on the comment about still paying into it now, I suspect it's not.

xylophone

https://www.expatica.com/ch/finance/retirement/understanding-your-swiss-pension-as-a-foreigner-1089118

"Private Swiss pension funds
The third pillar of the Swiss pension system is individual occupational insurance. This is categorised into the following designations:

restricted pension plans with an insurance fund;
unrestricted pension plans through savings, investments and private insurance policies.

Both schemes are voluntary and funded solely by the individual. They can be arranged with a range of private institutions, typically banks and insurance companies. This pillar can be an effective way to guarantee more retirement income, although some Swiss pension funds are riskier than others.

As a way to subsidise private pension savings, significant tax breaks apply to private pension contributions, which can be deducted from taxable income and are only taxed at the time of payment. They are also subject to preferential interest rates and the interest earned on contributions is tax exempt.

Furthermore, private pension schemes can typically be accessed earlier than Swiss retirement age. With restricted pension plans, it’s possible to take early withdrawal for matters such as buying your home, whereas many of the unrestricted pension schemes can be accessed any time.

It’s important to note, tax benefits will only apply for gainfully employed persons who are living and pay taxes in Switzerland."

Do you have the above?

bostonerimus

Aegis wrote: »

This is good advice if it's an actual pension, but based on the comment about still paying into it now, I suspect it's not.

Indeed, if it's not recognised as a pension in Switzerland then different taxation would apply.

unforeseen

But 3rd pillar funds should be paid out as soon as the person permanently leaves Switzerland.

If OP is still paying into it then it can't be a pension.

rudkilou

Thanks to all for your comments. It's a third pillar fund, with a life insurance element - a bit like an endowment policy.
It's split into two parts 3a: holds the value paid in whilst we were resident in CH - so taxable in CH. 3b is contributions paid since being in the UK.
Surrender value is actually about 80% (I've called to check). We've decided to surrender, as we are paying in after UK tax, so makes more sense to put more into UK pension than pay this. Now we just have to work out how to best get the money over to UK. I'm hoping that as the 3b pot has been paid with our income after UK tax, it won't be subject to taxation again?

rudkilou

xylophone wrote: »

"Private Swiss pension funds
The third pillar of the Swiss pension system is individual occupational insurance. This is categorised into the following designations:

restricted pension plans with an insurance fund;
unrestricted pension plans through savings, investments and private insurance policies.

Both schemes are voluntary and funded solely by the individual. They can be arranged with a range of private institutions, typically banks and insurance companies. This pillar can be an effective way to guarantee more retirement income, although some Swiss pension funds are riskier than others.

As a way to subsidise private pension savings, significant tax breaks apply to private pension contributions, which can be deducted from taxable income and are only taxed at the time of payment. They are also subject to preferential interest rates and the interest earned on contributions is tax exempt.

Furthermore, private pension schemes can typically be accessed earlier than Swiss retirement age. With restricted pension plans, it’s possible to take early withdrawal for matters such as buying your home, whereas many of the unrestricted pension schemes can be accessed any time.

It’s important to note, tax benefits will only apply for gainfully employed persons who are living and pay taxes in Switzerland."

Do you have the above?

Yes! This is it.

It's pension plus (pretty poor) life insurance. Split into two policies now: 3a - contributions made whilst a Swiss resident, and 3b - contributions made since being UK resident.

Surrender value is now approx 80%. I'm assuming that I will have to pay any tax due on the Swiss part, but as I've paid income tax before contributing to 3b, I won't have to pay on this part? (fingers crossed)