Tax on overseas pension

BridgetTheCat

I’m about to start taking a db pension I earned while working for the States of Guernsey many years ago. HMRC regard this as an overseas pension and both the annual income and the compulsory lump sum will be taxable.

I also still work part time in England on PAYE. How will HMRC gather the tax from my pension? Will they want it paid as a lump sum, or will they adjust my tax code after I’ve submitted my self-assessment form?

TIA

Isthisforreal99

Depends on how much the bill is and when you submit the return. Would have to be less than £3000 owing to have it collected through tax code.

BridgetTheCat

Thank you @Isthisforreal99. I believe the tax will be around £2500 the first year because of the PCLS, and then obviously much less in subsequent years. I should be able to submit the return fairly early in the year.

Dazed_and_C0nfused

BridgetTheCat said:

Thank you @Isthisforreal99. I believe the tax will be around £2500 the first year because of the PCLS, and then obviously much less in subsequent years. I should be able to submit the return fairly early in the year.

Your existing PAYE income would need to be able to support collection of £2,500 for it to be possible even if you filed your return by the deadline (30 December).

The rules HMRC follow are detailed here.  Just because it's less than £3000 doesn't mean it's a given it will be collected via your tax code, even if that is the option you select when filing your return.

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye12070

DRS1

BridgetTheCat said:

I’m about to start taking a db pension I earned while working for the States of Guernsey many years ago. HMRC regard this as an overseas pension and both the annual income and the compulsory lump sum will be taxable.

I also still work part time in England on PAYE. How will HMRC gather the tax from my pension? Will they want it paid as a lump sum, or will they adjust my tax code after I’ve submitted my self-assessment form?

TIA

You were working IN Guernsey or FOR Guernsey?  Aren't there special rules for Government pensions?  Just checked - the exemption doesn't apply if you are ordinarily resident in the UK.  Ordinarily resident is a term of art and not the same as being resident but the chances are you will be both resident and ordinarily resident if you have settled here.  Sorry.

If you are paying the tax on the pension through self assessment watch out for payments on account.  They don't always apply but if they do it can be a nasty shock.

BridgetTheCat

Thank you @Dazed_and_C0nfused, I think I will just play it safe and put the 2500 into a separate savings pot, which was my original plan anyway 😀

Dazed_and_C0nfused

BridgetTheCat said:

Thank you @Dazed_and_C0nfused, I think I will just play it safe and put the 2500 into a separate savings pot, which was my original plan anyway 😀

Ok that case you might need £3,750 as, depending on how much tax you pay at source like PAYE, there will be a payment on account due for the next tax year.

NB.  The POA is not paid "in advance" 😞

BridgetTheCat

@DRS1 Both.

I’m ordinarily resident in the Uk - already checked that. There’s no way out of paying the tax.

Yes the payment on account will be a bit of a pain, especially as the second year’s tax bill will only be about £600! I’m not sure if there’s any way of indicating that on the self assessment form.

Dazed_and_C0nfused

BridgetTheCat said:

@DRS1 Both.

I’m ordinarily resident in the Uk - already checked that. There’s no way out of paying the tax.

Yes the payment on account will be a bit of a !!!!!!, especially as the second year’s tax bill will only be about £600! I’m not sure if there’s any way of indicating that on the self assessment form.

You can make a claim to reduce the POA (on the return I think) if you have a valid reason.

But remember Self Assessment liability is about everything, not one specific source of income.  So if you reduce the POA to say £300 each and it turns out your actual liability was £800 not £600 the POA would be reinstated to £400 (each POA) and you would be charged late payment interest on any tax paid late.

The reason the liability ended up being £800 is completely irrelevant.

pinnks

My understanding is that you will also be cordially invited to join the Self Assessment Club as one of the criteria for "membership" is receipt of Foreign Income.

BridgetTheCat

pinnks said:

My understanding is that you will also be cordially invited to join the Self Assessment Club as one of the criteria for "membership" is receipt of Foreign Income.

Yeah, SA doesn’t faze me much. I’ve done it before since I was self-employed for a couple of years. It’s easier than filling in disability benefit claim forms.