Tax on SIPP overseas

gravlax

If you move overseas and are no longer UK tax resident when you start withdrawing from your SIPP, would the income taken from your SIPP still subject to UK income tax (i.e. the same FAD /  UFPLS 25% tax-free and UK marginal rate on the rest, and the 25% / 55% excess tax rates if the LTA is exceeded that apply to UK tax residents? If "yes" would you file a UK Self Assessment Tax Return to declare and pay the UK taxes?


  

xylophone

Would you not need to check the tax situation in the new country of residence?
Below seems relevant?

https://www.myexpatsipp.com/mesinsights/4-things-to-know-about-drawing-your-uk-pension-from-overseas

gravlax

xylophone said:

Would you not need to check the tax situation in the new country of residence?
Below seems relevant?

https://www.myexpatsipp.com/mesinsights/4-things-to-know-about-drawing-your-uk-pension-from-overseas

No tax due overseas.

[Deleted User]

You receive a NT code from HMRC upon receipt of evidence of tax residency overseas.
There is no TFLS, any income you draw is taxed in the country of tax residence normally as income (be careful about the change of tax years though overseas - you may be in a situation you think you are tax resident but may still be UK resident)

France has something a bit weird - but most countries are the same

gravlax

Deleted_User said:

You receive a NT code from HMRC upon receipt of evidence of tax residency overseas.
There is no TFLS, any income you draw is taxed in the country of tax residence normally as income (be careful about the change of tax years though overseas - you may be in a situation you think you are tax resident but may still be UK resident)

France has something a bit weird - but most countries are the same

Thanks. TFLS?

sjp999

Tax free lump sum

PCLS - Pension commencement lump sum might also make an appearance. 

gravlax

Thanks. So someone not resident for tax in the UK does not pay any UK tax on income they withdraw from their SIPP (and the 25% tax free element is irrelevant as no UK tax is being paid). All income withdrawn from the SIPP would be taxed, usually as income, in the country of tax residence.

What about the Lifetime Allowance - does that still apply to non-UK residents? If the LTA is beached by a non-UK tax resident, are the additional UK tax penalties applied on amounts over the LTA?

[Deleted User]

gravlax said:

Thanks. So someone not resident for tax in the UK does not pay any UK tax on income they withdraw from their SIPP (and the 25% tax free element is irrelevant as no UK tax is being paid). All income withdrawn from the SIPP would be taxed, usually as income, in the country of tax residence.

What about the Lifetime Allowance - does that still apply to non-UK residents? If the LTA is beached by a non-UK tax resident, are the additional UK tax penalties applied on amounts over the LTA?

Correct but I am not sure on the LTA - it could go either way, best call them. They are very helpful

Dead_keen

LTA would apply as normal. You would have a self-assessment obligation with the LTA.  The scheme administrator would normally have withheld this and paid it to HMRC.  It will also have a reporting obligation.

Noddy guide

I think that there is some confusion about how UK pensions are taxed in the international context, so here's my attempt at simplifying. It is not intended to be complete and I'm ignoring things (like the LTA and BCEs).  Normal caveats about taking own professional advice from someone competent and based on your own circumstances.

1. Default UK rule: The default is that you are taxed in the UK when amounts are paid to you.  This default can be overriden in a number of circumstance, including:

• PCLS: some amounts can be paid to you tax-free
• a relevant double tax agreement: these may prevent some amounts being taxed in the UK
• timing: the temporary non-resident rules may tax you (on amounts received that haven't been taxed while you are overseas) in the year you return to the UK.

2. Local domestic rules: Each country you in will have rules around whether you are taxed on a UK pension.  These rules might depend on whether you are resident.  Some countries (e.g. Netherlands) will tax it at your marginal rate (e.g. Netherlands will treat it as Box 1 income and you will pay income tax and social security at a rate higher than the UK rate - social security would not be due if you were over Dutch state pension age).  Some countries have special rules that you might be able to opt in to (e.g. Cyprus and Portugal). These rules change from time-to-time (e.g. Portugal has changed recently and Australia's rules on whether you are resident or not are expected to change).  The domestic rules are unlikely to respect the UK's PCLS rules (so the PCLS would be taxable in full even if it would have been exempt.  Some countries have similar (but different) rules (e.g. Ireland).

3. Double tax agreement: These are designed to prevent the same amounts being twiced (and not the same amount escaping tax anywhere). DTA's often cover pensions (and they are easy to google) but there is no standard set of words.  As an example, if someone is resident in the country then (from memory) you'd get the following UK tax position when the pension is paid: Cyprus - pension not taxed in the UK, Portugal, government pension taxed in the UK, Netherlands - not taxed in the UK but terms and conditions apply, Chile - taxed in the UK, Switzerland - depends if the payment is a lump sum or not, etc.  You have to be resident in a country to take advantage of the DTA.  So if you spend a bit of time in a few countries without becoming resident the default position is that the UK will tax the pension.

4. Temporary non-residence rules: These basically say that if you only temporarily resident outside the UK then you will be taxed on the full amount of the pensions you received in the year you return to the UK. There is an exception for regular pension payments that total less than £100,000.  So if you take £1m out of the SIPP while resident somewhere else for a fea years and then come back to the UK then the £1m will be taxed at 45% on your return. Ouch.  You will be temporarily non-resident in you are not outside the UK for five or less years.  These rules are particularly complicated as you have to understand (i) the UK's statutory residence test (google "statutory residence test" flowchart) applies to your facts, and (ii) whether split year treatment is available based on your facts.  These means that "five" years can mean just over four years, or six years, depending on your facts.  

So that's the noddy guide.  It gets quite tricky to think about this post-Brexit with the visa requirements added on top (unless you have an EU passport or your spouse/partner does).  

If you google this sort of stuff then you will find the word "QROPS" mentioned quite a lot (by people trying to sell them).  These sales pitches describe their "pros" (which are not really "pros") but in almost all cases you would be foolish to touch them, even with a dirty barge pole. 

gravlax

Dead_keen, 

Are you saying that for someone not resident for tax in the UK, the default position is that they do pay UK tax on withdrawals from their SIPP? You say "Default UK rule: The default is that you are taxed in the UK when amounts are paid to you.  This default can be overridden in a number of circumstance, including:..." but you don't list "not UK tax resident" as one of the exemptions.

Other replies appeared to confirm that someone who is not UK tax resident does not pay any UK tax on income they withdraw from their SIPP and that all income withdrawn from the SIPP would be taxed, usually as income, in their country of residence - not taxed in the UK.

Can you confirm, in your view is this right or wrong? Can you offer any sources that clarify?

bostonerimus

gravlax said:

Dead_keen, 

Are you saying that for someone not resident for tax in the UK, the default position is that they do pay UK tax on withdrawals from their SIPP? You say "Default UK rule: The default is that you are taxed in the UK when amounts are paid to you.  This default can be overridden in a number of circumstance, including:..." but you don't list "not UK tax resident" as one of the exemptions.

Other replies appeared to confirm that someone who is not UK tax resident does not pay any UK tax on income they withdraw from their SIPP and that all income withdrawn from the SIPP would be taxed, usually as income, in their country of residence - not taxed in the UK.

Can you confirm, in your view is this right or wrong? Can you offer any sources that clarify?

To answer the question correctly you will need to tell us where you will be residing outside of the UK as it will depend on that country's tax code, UK tax code and any relevant Double Tax Treaty. If you live overseas you might well lose the 25% tax free allowance because it's not recognized where you live. But a good starting point is to understand that income arising in the UK is usually taxed by HMRC and if you are a non-resident you need to use foreign tax credits and tax treaties to avoid being double taxed. There are forms to file and treaty Articles to reference.