Payment of pensions abroad
These FAQs are for financial advisers only. They mustn’t be distributed to, or relied on by, customers. They are based on our understanding of legislation at the date of publication.17 October 2016
These FAQs give information about paying pensions from UK registered pension schemes to individuals who are resident abroad. Reference to pensions in the FAQs includes payments of secured pensions, income from drawdown arrangements and also taxable lump sums, as the same issues will apply to each with regard to payment options and taxation.
Pension schemes and providers may receive requests to pay pensions abroad from:
- Customers who have moved abroad to retire and may have brought UK pension funds into payment to cover their living costs in retirement.
- Non-UK nationals who lived and worked in the UK for all or part of their working lives and then returned home at or before retirement. Many of these people may hold UK pension funds which they will want to bring into payment when they are ready to retire.
Individuals in both of the above categories may need help in identifying how best to access their UK pension funds whilst they are living abroad. How benefits are paid to an individual living overseas will depend on the scheme rules and/or provider. The following options may be available:
- payments can be made to a UK bank account that the individual still holds.
- payments can be sent by cheque to the individual’s home address in their country of residence.
- payments can be paid directly from the UK to a bank account in the individual’s country of residence. Note – there is a system in place to help speed up international payments using International Bank Account Numbers (IBAN) and Bank Identifier Codes (BIC). This is an internationally agreed method for transactions between banks located in different countries and was originally introduced within the European Union but has since spread to other countries. However, not all countries (for example the USA) currently use it.
With all of these options, tax rates, exchange rates and bank transaction costs will affect the amount of money the individual actually receives.
The majority of pensions paid in the UK are taxed as earned income which means that they are paid and taxed under the PAYE system. The correct amount of tax is deducted from each payment taking into account the individual’s tax code. When an individual moves abroad they are likely to become non-UK resident and a non-UK tax payer. However, they may become liable for tax in the country in which they now live. As a result they could end up paying tax twice on their taxable pension payments – once on payment from the UK and once on receipt in the country they live in. However, many individuals may be able to avoid paying double tax in full or to a certain extent, if the following conditions apply:
- if the individual is living in a country with which the UK has a double taxation agreement, and the agreement exempts UK pensions from some, or all, UK tax then they can contact HM Revenue & Customs (HMRC) to arrange for payments to be made either without tax deducted, or with tax deducted at a reduced rate. This could mean that the payments would only be taxed once, on receipt in their country of residence. The UK has double taxation agreements with many countries and a list of them is held in the Digest of Double Taxation Treaties document which can be accessed here. To check the position for a particular country, find it in the digest then read the information in the ‘Other pensions/annuities’ tab.
- if the individual is living in a country with which the UK doesn’t have a full double taxation agreement, they may be able to claim UK personal allowances which can reduce the amount of tax due to be paid. More information can be found on this here. HMRC form R43 is available for this purpose. The form, and more information on how to make a claim, can be found at: R43 - form and guidance.
Any lump sums paid tax-free from a UK pension scheme may be taxed in the individual’s country of residence if they are resident abroad at the time of receipt.
How do you make a claim under the double taxation agreement procedure?(Expand content) (Minimise content)
An individual or their adviser should complete a claim form and have it approved by the tax authorities in the country where they live before sending it to HMRC. On receipt of the form, HMRC will then instruct the UK pension provider to make gross payments or to apply a reduced tax rate. If this is not organised before any taxable payments are made, it is possible for an individual to claim a refund for any overpaid tax.
Separate claim forms are available for residents of all countries with which the UK has a comprehensive double taxation agreement. This currently runs to thirteen countries (Australia, Canada, France, Germany, Ireland, Japan, New Zealand, Netherlands, South Africa, Spain, Sweden, Switzerland and USA). If the country of residence isn’t one of these then a standard claim form should be used. All the claim forms can be accessed in the section headed ‘Double taxation claim forms for non-UK residents’ at: http://www.hmrc.gov.uk/international/dta-claim.htm.
There are tax considerations for individuals living overseas who want to bring UK retirement benefits into payment. Anyone in this position may want to seek financial advice before drawing their benefits.
Pensions Technical Services