Press Release: Those receiving foreign pensions must be saved tax return
The Autumn Statement included a note that the tax treatment of foreign pensions will be changed so that it is more closely aligned with the UK’s domestic pension tax regime and this has been confirmed in today’s publication of draft Finance Bill 2017 clauses. The LITRG highlights that this could present HMRC with an opportunity to simplify how tax is collected on foreign pensions.
The proposals could mean a significant change for some pensioners, as – at present – only 90 per cent of the amount of foreign pension received is generally subject to UK tax. For a £1,000 foreign pension with tax due in the recipient’s hands at the basic rate of 20 per cent, this will mean an extra £20 a year tax.
Anthony Thomas, Chairman of LITRG, said:
“These measures seem to come at a cost to existing recipients of foreign pensions accustomed to paying income tax on only 90 per cent of that income. At the very least, there will need to be clear communications to those affected.
“We would hope that the changes will be accompanied by a review of HMRC’s rules which currently require all those in receipt of a foreign pension to complete a self-assessment tax return each year. Currently this presents an annual cost to those in receipt of foreign pensions (particularly as often will be the case if they have to engage an agent for assistance), and puts them out of step – seemingly unnecessarily – with those receiving only UK pensions.
“It also presents an unnecessary cost to HMRC, particularly if the effect of processing a tax return is that nil tax is collected. Given that HMRC will no doubt have to make some systems alterations to take account of the changes in rules in any case, it seems sensible to remove altogether the self-assessment requirement for these pensioners where possible. Furthermore, this could tie in very neatly with the introduction of ‘simple assessment’ from 6 April 2017, through which HMRC can bypass the need for a tax return. This would likely be administratively cheaper and more efficient for those in receipt of a predictable foreign pension.”