One question we are often asked by our expat clients is 'If I have a UK company pension but make contributions using money earned overseas, will it escape UK income tax?'
The confusion usually arises from the fact that while UK-sourced pension income is taxable in the UK (even if it’s paid to a non-UK resident) there is also an HMRC exemption that suggests pensions involving contributions from work done outside the UK are not liable for UK tax if the pension is paid to a non-resident.
The basic answer is that the Income Tax (Earnings and Pensions) Act 2003 charges UK income tax on all pensions paid from the UK. However there is indeed a special provision which exempts the pensions of non-UK residents from UK income tax if they solely contain contributions from employment carried out abroad.
Our advice is always to be very careful. You need to ensure you meet some very stringent conditions and make sure you are living in a country with a current Double Taxation Agreement with the UK.
If you think your pension may be exempt from UK taxes but want to make sure, or if you are living overseas and have any other questions regarding your personal tax situation, please contact Jane Greenwood.
Formally a Partner at Alliotts