Where is your pension taxed?

If you're receiving a pension from overseas it's important to be able to establish in which country it is taxed. As a UK resident you are usually taxed on your worldwide income, which would include a pension from overseas. If you are a UK resident, non UK domiciliary you will be able to claim the remittance basis of tax. If you do this your overseas pension will only be taxed in the UK to the extent that you actually bring it into the UK, however you may lose your UK allowances and need to pay the £30,000 RBC if you've been UK resident for more than 7 tax years. Note that a UK resident receiving a pension from overseas can claim a 10% reduction in the pension before calculating any UK income tax. This also applies to social security pensions but does not apply to anyone subject to the remittance basis of tax. As well as the UK though, when looking at where a pension is taxed you'll need to consider the overseas country where the pension is paid. This may well also subject the pension to tax. If you're taxed in the UK and abroad you can claim double tax relief for UK tax purposes to ensure that you aren't taxed twice on the same income. This will usually operate as a tax credit to reduce any UK income tax charge due. In many cases though you would look to a double tax treaty to assess where a pension is to be taxed. If you're after a list of the UK double tax treaties have a look at this: List of double tax treaties If we look at a random country - eg Egypt you'll see that if you scroll down there is an article 18 headed pensions. This states: 'Subject to the provisions of paragraphs (1) and (2) of Article 19 pensions and other similar remuneration paid in consideration of past employment to a resident of a Contracting State and any annuity paid to such a resident shall be taxable only in that State. The term `annuity` means a stated sum payable periodically at stated times during life or during a specified or ascertainable period of time under an obligation to make the payments in return for adequate and full consideration in money or money's worth.' This is therefore saying that unless Article 19 applies, a pension paid to a UK resident from Egypt will be taxable on in the UK. Article 19 is in respect of government service and paragraphs (1) and (2) state that: 'Remuneration or pensions paid out of public funds of the United Kingdom or Northern Ireland or of the funds of any local authority in the United Kingdom to any individual in respect of services rendered to the Government of the United Kingdom or Northern Ireland or a local authority in the United Kingdom in the discharge of functions of a governmental nature, shall be taxable only in the United Kingdom unless the individual is an Egyptian national without also being a United Kingdom national. Remuneration or pensions paid by, or out of funds created by Egypt or a political subdivision or a local authority thereof to any individual in respect of services rendered to the Government of Egypt or a political subdivision or a local authority thereof, in the discharge of functions of a governmental nature, shall be taxable only in Egypt unless the individual is a United Kingdom national without also being an Egyptian national.' This is therefore stating that a government service pension (eg a civil service pension) is taxed only in the country where it is paid. So in the case of an Egyptian individual resident in the UK but receiving an Egyptian pension it would be taxed in Egypt only (and vice versa) unless he is a UK and non Egyptian national. The terms of a double tax treaty can therefore significantly amend the UK's domestic tax rules. If you look at some of the other treaties you'll find that most of them follow the same rules as above, namely: