Expat Tax Boost Hidden in Treaty Small Print

Hundreds of expats with UK pensions who live in countries that have signed tax information exchange agreements (TIEA) with the UK need to check if their tax status has changed.

In many cases, when the UK and overseas governments ratify the agreement, the TIEA amends arrangements over double taxation and means non-UK residents with UK pensions can apply to HM Revenue and Customs to have their pensions paid without the deduction of tax.

This can lead to substantial tax savings for 40% taxpayers who are looking at paying 50% tax from next April, if their new home is in a country that has lower rates of income tax.

The information has come to light in a statement from the Jersey financial authorities as a TIEA signed in July came in to force at the end of November.

So far, HMRC or any UK government spokesman has not mentioned the change that means reduces the pension tax take from expats.

Other TIEA agreements in force cover UK expats living in:

• Guernsey
• Isle of Man
• Bermuda
• Gibraltar
• Montserrat
• British Virgin Islands
• Netherland Antilles
• Aruba

The agreements are not necessarily the same for each country, so residents will have to check the treaty between their place of residence and the UK with local tax authorities and HMRC.

Alternatively, for more flexible benefits and other advantages, while reviewing expats reviewing their tax status should also consider transferring their cash in to a QROPS offshore pension scheme.

Jersey Comptroller of Income Tax Malcolm Campbell has confirmed that from April 6, 2010, UK pension holders can have their pension benefits paid gross instead of net of tax.

He said: “This arrangement could mean significant savings in terms of tax paid for some Jersey residents, who could have been paying 40% tax to HMRC on their pension and who may in future be subject to tax at 50%. The arrangement means that, subject to a claim being made and accepted by HMRC, Jersey residents will only be paying tax in Jersey, at a maximum rate of 20%, on their UK pension.

“The arrangement also affects residents of the UK who have been paying Jersey tax on their Jersey pensions. Under this arrangement UK residents will be able to apply to the comptroller to stop having Jersey tax deducted from their Jersey pensions and only pay tax in the United Kingdom.”