Double taxation UK - Ireland

tm22uk

Hello,

Would need some advice, please, sorry, a longer read...

End of last year I have received a one-off pension lump sum payment from a pension I had with an employer in Ireland, from years ago.

From 1999 to 2003, which is when I left Ireland and moved to the UK.

The Irish pension company have paid out, but had to apply emergency tax, as I don't live there anymore and don't have a current tax code.
Think they taxed about 30 something %. With conversion rate used from the payout month, about £ 4220 from £ 12100, not the exact numbers, but roughly that.

Clearly more than what I would have been taxed with here.

I was told by the Irish that I can claim this back, once the UK tax office has issued a tax statement.

When phoning HRMC, they told me I have to do an online self assessment, declare this payment, so they can see that I have already been taxed.

Even with only the one payment to declare, it was quite a chore to fill this out, so I phoned one of their technical advisors to guide me through the questions.

I didn't quite understand, whether foreign tax credit relief applies or not, the advisor said no, so I left it unticked.

I sent everything through, then checked it and it showed that I owe them 20p.
The advisor said, don't worry, we won't chase you for it. He said to call them in a few days to get all verified.
A few days later, it still showed the same.

I phoned them last night to check, talked to a (different) technical advisor who said, no, this is wrong.

You actually owe us £ 2400 something. you have to pay this, then we issue a tax statement, showing that we taxed this, then you can go back to the Irish tax guys with this and claim back what they taxed.

My question is, is this how double tax agreements work?
Somehow, I couldn't find a clear answer to this online.

Do I really have to pay tax twice first, to then be able to ask for a refund from the first, foreign tax office?
In other words, running from one tax office to the other?

This could go on forever, I have a feeling...being sent from one side to the other endlessly.

Thing is, I phoned HRMC a few times, every time talked to a different person every time and they all told me something different each time.

Not to mention that it's a nightmare to get through to them in the first place, with being thrown out of the line at times, or answering some voicemail questions for 3 minutes, to then be told they are too busy to take my call and hang up on me.
Or, after 30 minutes waiting, getting through and after explaining, being told by the call agent that I have to speak to a technician, but they are not available now, would I like to ring back?

Or they arrange a call back, which either never happens or happens, but not on the agreed day and time.

Anyway, I'm sure many experienced the same, but hope that someone can advise on the tax matter above.

Many thanks!

EdSwippet

tm22uk wrote: »

My question is, is this how double tax agreements work?

Sometimes. It's unfortunate and annoying, but usually works itself out, although the delays can be long at times. In the worst cases a wait of up to 18 months before getting over-withheld tax refunded is not unknown. Offset tax years across countries can exacerbate this delay.

tm22uk wrote: »

Do I really have to pay tax twice first, to then be able to ask for a refund from the first, foreign tax office?

The UK/Ireland tax treaty is pretty clear on who gets the tax in this case:

Article 17 Pensions
(1) Subject to the provisions of paragraphs (1) and (2) of Article 18, pensions and other similar remuneration paid in consideration of past employment to a resident of a Contracting State and any annuity paid to such a resident shall be taxable only in that State.

Parsed out to cover your situation as described: "Subject to {this not being a government pension (it isn't one, right?)}, pensions ... paid ... to a resident of {the UK} ... shall be taxable only in {the UK}."

If Revenue Ireland ask you to quote a treaty article -- and they might or might not -- the above would be it. In practice it should not be necessary to prove to Ireland that you paid UK tax on your pension, but you might need to prove UK residence and so ability to use the treaty.

Your Irish tax liability on this payment should be zero, so you would want the full Irish withholding refunded to you. What you end up paying to the UK on this pension, 20%, 0% or whatever, is immaterial under the treaty.

Some countries have mechanisms to automatically apply treaties to payments made to residents of other countries, and that would avoid the problem you now have. Did your Irish pension provider know that you were a UK resident and Irish nonresident? That might have let them pay you with no Irish tax withheld. Water under the bridge now, anyway.

tm22uk wrote: »

This could go on forever, I have a feeling...being sent from one side to the other endlessly.

There might be some lead time before Revenue Ireland sends you the refund, but this should not go on endlessly or bounce around the two. Just send them what they need to claim the treaty benefit cited above and they should (eventually!) get around to processing it.

tm22uk

Thanks for the detailed info, yes, it's not a state pension, but an employer's pension plan.
And Ireland Revenue knew that I live in the UK now, actually since 2003.
They sent all the documentation to my UK address.

So in essence, it is correct that after having tax deducted first by Revenue Ireland, I need to pay now to HRMC, too and then claim back from Ireland, by sending them the letter of residence or tax statement and / or quoting the treaty article above.

In short, can you confirm this is the way to go?

It may take a while until Revenue Ireland refunds, but I don't have to pay HRMC until January 2020, hopefully it's all wrapped up by then.

Thanks again!

EdSwippet

tm22uk wrote: »

And Ireland Revenue knew that I live in the UK now, actually since 2003. They sent all the documentation to my UK address.

Most countries have some mechanism by which non-residents can claim treaty rates from the payer for pension, interest and other payments. It's a win-win when it works -- the taxpayer doesn't suffer temporary double-tax and the country's tax authorities don't have to spend time and pointless paperwork to issue refunds for the over-withholding.

tm22uk wrote: »

So in essence, it is correct that after having tax deducted first by Revenue Ireland, I need to pay now to HRMC, too and then claim back from Ireland, by sending them the letter of residence or tax statement and / or quoting the treaty article above.

To be clear, Revenue Ireland didn't deduct tax. The pension payer did, and then they sent it to Revenue Ireland. Because you have no actual Irish tax liability on this payment though, you now have to reclaim that back from Revenue Ireland. It might be possible for the payer to do that for you, but probably unlikely at this point.

The end result is that you owe HMRC whatever is your marginal tax rate on this chunk of income, no 'foreign tax credits' or any other finagling, and nothing to Revenue Ireland. So for the UK you declare and pay tax on the full £12,100 on your UK self-assessment. For Ireland, you claim your full £4,220 back under the treaty.

No idea of the details of Ireland's mechanism or paperwork for doing that, but they should be able to tell you how when you ask. Some confirmation of UK residence might be needed, but nothing more than that. The following page seems to cover the basics:

https://www.revenue.ie/en/life-events-and-personal-circumstances/moving-to-or-from-ireland/leaving-ireland/index.aspx

Worth noting this, from the 'retired and moving abroad' part:

Private sector Irish occupational pension
You may be receiving an Irish occupational pension from a private sector employer. If so, your pension will be taxed in the country that you are tax resident in if you are both:
- non-resident in Ireland for tax purposes
- resident in a country which has a Double Taxation Agreement with Ireland.
You can request a PAYE Exclusion Order which would result in no Irish tax being deducted.

You may be resident in a country with which Ireland does not have a Double Taxation Agreement. If so, your pension will continue to be taxed in Ireland.

It seems like a 'PAYE Exclusion Order' could have saved you this current hassle, had you known to obtain one ahead of time.

tm22uk

Thanks again, this was a one off payment, nothing else will come from Ireland anymore.

Didn't know about the PAYE exclusion option, but too late now anyway.

Guess, I'll contact Revenue Ireland and ask what exactly they need, last time they wanted a tax statement that shows that HRMC has taxed me for this. Which is what HRMC said they will send me, should take about 10 days.

This should also function as a proof of residence, as it shows that I was a UK resident in tax years 2018/19 - and still am.

Thanks for the advice, it's all a bit clearer now.
Just glad that this was a one off thing and won't happen again.