In recent budgets the government has been trying to align the taxation of foreign individuals with the UK tax system. Up to 5th April 2017 only 90% of a foreign pension or annuity payable received by a UK resident (except those claiming the remittance basis) was included within taxable income and chargeable to UK tax.
From 6 April 2017 the whole (100%) foreign pension or annuity payable to a UK resident will be chargeable to tax. This means that pensions paid to UK residents will be taxed in the same way whether the scheme is based in the UK or overseas.
However, these changes will not affect how the following are taxed:
- foreign pensions or annuities paid to non-domiciled individuals claiming the remittance basis
- certain pensions paid following the death of a member or a beneficiary aged under 75, which are to remain tax free.
From 6 April 2017 lump sums paid by non-UK pension schemes to UK residents will be taxable regardless of the type of pension scheme paying the lump sum. However the taxing provision and the taxable amount will depend on the nature of the scheme making the lump sum payment.
Currently, non-UK lump sum pension payments will not be subject to UK tax if they are received during a five year period of non-residence. This time period will be extended to 10 years from 6th April 2017.
If you receive foreign pensions or are due to drawdown a foreign pension, please speak to us and we can advise on how these changes will affect your future income. To find out more contact Tom Penman on 028 9032 3466 or email tompenman@bakertillymm.co.uk