Some retirees might be able to claim back some of their money
More than one million British pensioners residing abroad are still receiving their State Pension, according to Department for Work and Pensions (DWP) data. However, these expat Brits could potentially face double taxation on their regular pension payments.
According to official guidance from GOV.UK, people could be taxed twice on their State Pension by both the UK and the country they’re currently residing in. Despite this, there’s a possibility of claiming some of the money back to avoid losing out on extra cash from your State Pension. However, the ability to do this will depend on the country you live in and your total income.
How State Pension tax works
When you receive your State Pension, you’ll be taxed if your total annual income exceeds your Personal Allowance. Typically, the standard Personal Allowance is £12,570, which is the amount of income you can earn without having to pay tax on it.
If your earnings exceed £100,000, then your personal allowance will decrease by £1 for every £2 that your net income is above £100,000. Therefore, your allowance will drop to zero if your income is £125,140 or more.
You can find full details on the current income tax rate bands here.
Claiming money back if you’re taxed twice
Generally, you can claim tax relief to either get some or all of your tax back. To do this, you’ll need to apply for tax relief in the country your pension is from (usually the UK).
Remember, most pensions are free from foreign tax but still subject to UK tax. If necessary, you’ll need to seek tax relief in the country where the income originates, as per that nation’s double-taxation agreement.
If you’re uncertain whether the country you’re residing in has a double-tax agreement with the UK, you can verify it here.
How to claim
To claim tax relief on your pension, you’ll need to request a form from the foreign tax authority, or write a letter if a form isn’t available. You must also demonstrate your eligibility for tax relief by either filling out the form and sending it to HMRC or including a UK certificate of residence if you’re applying via a letter.
If you forward the form to HMRC, they can confirm your residency and return the form to you. This evidence can then be forwarded to the foreign tax authority.