Tax assessment for Belgian State Pension: how they did it

Annemos

Good morning everyone. 

Facts: Single Person.    Non-resident in Belgium.   Resident in UK

1)  Has a small Belgian state pension of around 2000 euros in 2021. This is the first year I received Belgian state pension payments. 

This is declared for "Belgian assessment year 2022" which covers income for 2021:  2000 euros is reported on Belgian Tax Return line 1228

2) I also had to report on line 1330: The total combined amount of my UK State pension and UK private pension in euros. 

3) I do not have any wages from anywhere. 

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I filed the tax return on-line in October 2022. I received the Tax Return today March 2023. 

Tax calculation shown is:      2000 taxable income x 25% tax = 500 euros starting tax. 

But then they take off a reduction in tax of 500 euros. 

So I end up with no tax to pay. (Me very happy of course. Definitely going to celebrate with a cup of coffee and a piece of cake!)

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Some notes:

a)  Note that the taxable income is all of the 2000 euros. They did not give me any income reduction. (I believe this is because my small Belgian pension is not more than 75% of all my income. 

b)   But the very nice surprise for me, is that they have allowed me a tax reduction.

I tried to do a search on this and came up with a 2020 Belgian newspaper article which says this:   Voor pensioenen en andere vervangingsinkomsten is er altijd een basisbelastingvermindering van 1.802,44 euro. 

In English.... For pensions, there is always a tax reduction of 1,802.44 euros. (This was in 2020.) 

So interestingly, I do seem to be getting that benefit. And they have not curtailed it all by any percentage, even though I have non-Belgian pension income. 

Here is that article: (thanks to Ms Petra De Rouck): 


https://www.tijd.be/netto/belastingen/aangifte2020/hoe-wordt-uw-wettelijk-pensioen-belast/10226825.html

pinnks

I assume said person is resident in the UK?

You'll need to look at the double taxation agreement between the UK and Belgium but my understanding is that the Belgian state pension (and any other Belgian pensions) are taxable only in Belgium (Article 18(1)) unless you are talking about a government service pension when the position is reversed if the person is a national of the UK (Article 19(2)(b)).

I am not sure why you have to report your other UK pensions on the Belgian return, unless their tax rate is progressive in the same way as the German system and can thus be increased by the amount of foreign income that is not taxable in Germany.  But that situation is provided for in the UK German treaty and on a quick scan I cannot see anything similar in the UK Belgium treaty.

Does Belgium award their version of the personal allowance to non-residents in the way the UK allows EEA citizens to claim the UK PA?

Annemos

Yes resident in the UK. Non-resident in Belgium  (Now added, thanks.)

Yes the Belgian pensions are ONLY taxable in Belgium. 

But the issue is, once you do the Belgian Non-Resident tax return, there is an explanation for line 1330 on the actual tax return, that they are asking you to disclose the non-Belgium income on that line. They go on to say....we shall not tax it, but we need to know it to work out if you are entitled to any other deductions/reductions. 

(See my point a) above. So for example in UK we get a personal allowance. Belgians need to know what all our non-Belgian pension income is, too, so they can work out if we will be entitled to an equivalent reduction to income. I can only describe what is shown in the Non-resident instructions.)



This is a PWC tax summary: 

The exempt income, personal deductions, and the attribution of income to the spouse are, in principle, applicable both to residents and non-residents, although for non-residents these exemptions and deductions are only applicable provided they earn at least 75% of their worldwide professional income in Belgium. Moreover, in order to be entitled to regional tax benefits in Belgium, those non-residents must also maintain their tax residency in another member state of the European Economic Area.

I assume the regional tax benefits is for the Commune Tax? I also believe that they consider monthly pension pay outs to be "(deferred) professional income. (The tax return includes pensions in the same area for line 1330 as things like foreign wages.)

pinnks

That takes it beyond by knowledge...  

Annemos

I agree, pinnks.... it goes beyond mine, too. 

When I was looking at this, as soon as I started to receive the Belgian state pension, all the trails are so hard to follow. And in the  foreign languages.

I don't know what people do if they do not have the language skill.... ask Tax Authorities over there for help? Or perhaps have the first tax return done by an accounting firm. 

Thanks again for pulling me up on what my actual residency and non-residency is.  

JessicaTyrrell

I receive a (very) small Belgian State pension, from tax year 19/20. I declared and paid tax on it to HMRC, as with the French pension. However I received a demand form the Belgian tax authorities in 2024 and I queried this with HMRC. After several phone calls, I talked to a helpful person in the Technical department and he sent me a long and exhaustive letter in Oct 24 (which I would gladly share if that were possible on this forum). The letter explained that there had been a muddle with the legal drafting of the Double Tax Agreement, and it meant that it actually said the opposite of what both parties originally wanted it to say. Now such income has to be declared in the country of origin, not the country of residence.

I requested a refund from HMRC, and have succeeeded in this for all years except 19/20. The grounds for this refusal were that the deadline for refunds for that year was April 24. But the explanatory letter I teceived was not until Oct 24, so how could I request a refund before April 24? I am taking this to the Adjudicator, so let's see.

I can't help thinking that there must be many other people who are paying this sort of tax unwittingly to HMRC, which it happily accepts without saying anything, and they just don't know that it is wrong and they are entitled to their money back. I have asked in my submission to the Adjudicator that HMRC proactively write to anyone paying tax on Belgian state pension income to alert people so they can request a refund. I am sure their software and data systems can allow them to do this, if they want. Also, put a note in the Self-Assessment system saying that Belgian state pension income should not be included. Again, this would be easy for them to do.

pinnks

This has been an issue for many years since an eagle-eyed Belgian tax specialist notice that the intentions of the parties was not reflected in the wording of the new treaty, but the issue is not quite as you describe.

Pensions are deal with in Article 18 of the DTA and paragraph 1 clearly states that all pensions, other than those dealt with in Article 19 (government service pensions), are taxable only in the paying country and not the country of residence. This means that a person in receipt of a Belgian pension is not required to complete the foreign pages of the UK tax return and indeed is not drawn into Self Assessment by reason only of having that Belgian pension. See the Foreign Notes Page FN10 for the form of words you would put in the other information box on your return if you are otherwise required to submit one.

The issue was covered in the letter to which you refer is not quite as your describe it. It's about the grandfathering protection offered by paragraph 2 of Article 18 for those who were receiving a pension before the current DTA came into force. That provision refers to income under a "pension scheme" and both parties thought that applied also to the state pension. HOWEVER, if you read the definition of pension scheme elsewhere in the treaty it is absolutely clear that it does not include a social security pension and that is what the eagle-eyed Belgian tax official spotted. There was a very long discussion on this issue on the old HMRC community forum.

So, many UK residents who was in receipt of a Belgian state pension before 2013 that was taxable only in the UK, erroneously thought they could carry on with that treatment but they were wrong because Article 18(1) of the new treaty flipped the taxing rights over such state pensions to the paying country from when the treaty came into force.

In terms of your error, the time limits are applied strictly and, as you submitted a Self Assessment of your tax via your tax return, the onus is on you to get it right. I wish you well with your approach to the Adjudicator, but I fear that their response will be along the above lines.