What UK tax do I pay on my overseas pension?

Updated on 18 June 2019

Migrants

If you receive income from an overseas pension, you need to consider whether you should report that pension income to the UK tax authority, HM Revenue & Customs (HMRC), and whether any UK tax is due on it.

This page only provides guidance on your UK tax position. The overseas tax position is not considered, other than how it may be affected by the terms of a double taxation agreement. You should always seek advice to confirm the position in the overseas country concerned.

This is a complex area and we strongly recommend you seek advice on your individual circumstances. In particular, please note we do not cover the UK taxation of overseas pension lump sums, which may be treated differently. Where the overseas pension income is not a regular, periodic payment having the nature of an annuity, or if there is any doubt as to the nature of the pension income – for example, if an overseas pension fund is accessed flexibly – you should seek advice as the treatment can vary.

How do I work out whether my overseas pension is taxable in the UK?

Whether or not your overseas pension is taxable in the UK depends on a number of factors, but there are two main stages to determining the position:

  1. What is the tax position under UK domestic law?

    If the pension is not in scope of UK tax (in other words, it is exempt) under UK domestic law, then no tax is due and you do not need to report the pension. You do not need to consider a double tax agreement.
     
  2. If the pension is taxable under UK domestic law, does a double tax agreement override the UK’s right to tax?

    You should consider this even if the pension is taxable under UK domestic law and you have total taxable income in excess of your personal allowance but no tax is due on the pension itself (because it is taxed in priority to other income and it falls within the personal allowance). This may be the case if you have, for example, pension income of £10,000 and savings income of £9,000. If relief is available under a double tax agreement for the pension income, you will then be able to use your personal allowance against your other income which is taxable.

    A double tax agreement may specify that the pension is taxable only in the UK, or only in the other country. In the latter case, the double tax agreement effectively overrides the UK domestic position and no UK tax is due, but you may still be required to report it to HMRC.

    If the pension is taxable under UK domestic law and the double tax agreement specifies that the pension is taxable only in the UK, then the domestic UK position is unchanged. In this case, if you have paid taxes overseas on the pension, you should be able to claim a refund from the overseas authority. It is not appropriate to claim relief (by means of a foreign tax credit) in the UK in this instance. In some cases, you may be able to arrange for the overseas pension to be paid without deduction of foreign taxes at source.

    If the pension is taxable in the UK under domestic law and there is no double tax agreement with the country concerned, the pension should be reported to HMRC and taxed as normal. If it has suffered tax overseas, see also What happens if foreign tax has been deducted from my overseas pension?.

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Is my overseas pension taxable in the UK under UK domestic law?

First, you need to determine whether or not you are resident in the UK under the Statutory Residence Test. For example, if you spend more than 183 days in the UK in a tax year, you will be resident in the UK under this test. If you spend fewer than 183 days in the UK, then you will need to consider whether you are resident under other parts of the Statutory Residence Test.

If you are resident in the UK under the Statutory Residence Test, the overseas pension is likely to be taxable in the UK under UK domestic law. This is because people who are tax resident in the UK are generally taxable here on their worldwide income. There are two main exceptions:

  1. The overseas pension is specifically exempt under UK domestic law, such as German and Austrian annuities and pensions for victims of Nazi persecution. See What income is taxable?.
  2. You are not domiciled (or deemed domiciled) in the UK, the remittance basis applies, and the pension income is not remitted to the UK. We discuss this below.

If you are not resident in the UK, the overseas pension will not be taxable in the UK. This is because non-residents are only taxable in the UK on income sourced from the UK.

If you are resident but not domiciled (or deemed domiciled) in the UK, you should consider whether or not the remittance basis applies. The remittance basis applies automatically if you have unremitted foreign income and gains of less than £2,000 in a tax year. Therefore, if you do not remit the overseas pension to the UK (that is, bring to the UK, or use or enjoy the income in the UK), and together with any other unremitted foreign income and gains the £2,000 limit is not exceeded, then the pension will not be taxable in the UK as long as it is not remitted here. This may apply to you if you have a small overseas pension which you keep outside the UK.

If you are resident and not domiciled in the UK, but the remittance basis does not apply, or if you have remitted the pension income to the UK, then the position is broadly the same as if you were domiciled in the UK. That is, the overseas pension is in scope of UK tax under UK domestic law.

Please see How are foreign income and gains taxed? for a more detailed discussion of these issues. In the remainder of this section, we look at the tax treatment of overseas pensions assuming that the remittance basis of taxation does not apply.

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My overseas pension is taxable under UK domestic law. What about double tax agreements?

If you have established that your overseas pension is taxable in the UK under UK domestic law, the next step is to consider whether there is a double tax agreement between the UK and the country where the overseas pension is sourced, to see if it states that the UK’s right to tax that income is overridden. It will normally do this by stating that the pension income is only taxable in the other country. This means that it is not taxable in the UK – and a claim for relief under the agreement may be made if the UK wishes to tax it under its domestic law.

You can find a list of double tax agreements on GOV.UK. You can also read more about them on our page What if I am liable to tax in two countries on the same income?.

Most double tax agreements follow a similar model, but you must always check the wording of the specific agreement between the two countries. Double tax agreements, also known as tax treaties, comprise a number of ‘Articles’.

The first step to making sense of a double tax agreement is to determine in which of the two countries (known as ‘Contracting States’) you are resident for the purposes of the agreement. If you are only tax resident in one of the countries, this will be the country in which you are resident under the domestic law of that country. However, it is possible to be resident in both countries. In this case, you must refer to the tie-breaker tests in (usually) Article 4. Once you have done this, you can then understand what is meant by the term ‘resident of a Contracting State’.

Next, you need to find the Article covering the specific pension. This will depend on whether the pension is either:

The tax treatment of each of the above is covered below.

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What if my overseas pension is in respect of a past employment?

These pensions are normally covered at around Article 18 of a double taxation agreement, which will normally say something like this:

Article 18

Pensions

Subject to the provisions of paragraph 2 of Article 19, pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that State.

This is the general rule and can be found in most treaties. Where it applies, it means that for an individual who is resident (for the purposes of the agreement) in the UK, overseas pensions paid in consideration of past employment shall only be taxable in the UK. This means they should not be taxed in the other country. If they have been, it should be possible to apply for a refund from the overseas tax authority. It is not appropriate to claim relief in the UK (by means of a foreign tax credit) in this instance.

Note that social security pensions are not considered to be ‘in consideration of past employment’ or regarded as paid for services to the Government – these are dealt with below.

Also, note that some Article 18 wording makes specific reference to the payment of an annuity, some does not. However, HMRC guidance seems to suggest that the word ‘pension’ could be interpreted to include annuity in any case.

The exception under paragraph 2 of Article 19 relates to overseas pensions for Government Service. This is covered below.

Example

Marie is a French national who has lived in the UK for 20 years. She spends two months of the year in France and the rest of the year in the UK. She has recently retired. She receives a UK state pension, a UK occupational pension and a French pension from a previous employment, from which French tax has been deducted.

Marie is resident in the UK because she spends more than 183 days here each year. She is also deemed domiciled in the UK, having been resident in the UK for more than 15 of the previous 20 tax years. This means the French pension is taxable in the UK under UK domestic law.

The UK-France double tax agreement follows the model Article given above. This means that, as Marie is resident in the UK for the purposes of the agreement, the French pension is taxable only in the UK and it should be reported on the Foreign pages of a UK Self Assessment tax return (after converting to GBP). Alternatively, it might be possible to arrange for the tax on the French pension to be collected via PAYE from the UK occupational pension.

The French tax should be reclaimed from the French tax authority – it cannot be used for a foreign tax credit claim in the UK (see What happens if foreign tax has been deducted from my overseas pension? below).

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What if my overseas pension is a ‘state’ or social security pension?

Foreign ‘state’ pensions which are similar to the UK state pension (that is, paid in accordance with the social security legislation of the overseas country) are usually covered under an ‘Other Income’ Article such as the following:

Article 21

Other Income

Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that State.

Where it applies, this means that an overseas social security pension paid to an individual who is resident in the UK (for the purposes of the agreement) is only taxable in the UK.

Under some treaties, for example the UK-Spanish double tax agreement, social security pensions fall under the ‘Pensions’ Article, rather than the ‘Other income’ Article. To find out where state pensions are dealt with in the treaty concerned is to look at HMRC’s Digest of Double Taxation Treaties.

If they fall under the Pensions Article then usually they will only be taxable in the UK. However, some treaties (such as the UK-Germany double tax agreement), specifically state that such pensions are only taxable in the country which makes the payments. Again, you must check the wording of each agreement carefully.

Example

Ernst is a German national who has also recently retired, having lived in the UK for 12 years. He is UK resident. He receives a UK state pension, a UK private pension and a German social security pension. During his career, he spent 10 years working in Spain for which he receives a small social security pension. Both overseas pensions are remitted to the UK.

Ernst may or may not have acquired a UK domicile of choice, but as the overseas pensions are remitted to the UK, they are taxable under UK domestic law in any case.

Now we must look at what the relevant double tax agreements say. The German social security pension is taxable in Germany under Article 17(2) of the UK-Germany double tax agreement. This means that the UK cannot tax the social security pension, even though it wishes to under domestic law.

However, there is no such wording in the UK-Spain double tax agreement. This means that, under the Pensions Article of the UK-Spain double tax agreement, the Spanish social security pension is taxable in the UK and not in Spain.

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What if my overseas pension is a Government Service pension?

If your overseas pension is taxable in the UK under UK domestic law and you are resident in the UK (including under the terms of a double tax agreement), you should be aware that Government Service pensions are often treated differently.

Government Service (or ‘civil service’) pensions are typically any pension paid by, or out of funds created by, a country (or political subdivision or local authority thereof) to an individual in respect of services to that country (or subdivision or local authority). You can find more information on what kind of pension falls into this category in HMRC’s technical guidance. They can include pensions for Armed Forces personnel, for example.

These pensions are usually considered under paragraph 2 of Article 19 of a double tax agreement, which generally says that such pensions are only taxable in the country which provides the pension unless the individual is a resident and national of the other country.

For example, an Italian national who is UK resident (for the purposes of the relevant double tax agreement) in receipt of an Italian ‘civil service’ pension will have that pension only taxed in Italy. If such an individual happened to be a UK national (and not an Italian national), such a pension would only be taxable in the UK.

Again, you must check the terms of the specific Article(s) of the relevant agreement.

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What if my overseas pension is another type of pension, such as a personal or private pension?

Some people may have a personal or private pension that they arranged themselves (for example, through an insurance company).

If a pension is not considered under the Pensions or Government Service Article of a treaty, then the income will generally be treated as ‘Other Income’ (see above for an example).

Where this applies, the pension will generally only be taxable in the country where the individual is resident for the purposes of the double tax agreement.

Not all personal or private pensions are taxed under the ‘Other Income’ Article. For example, the UK-Germany double tax agreement specifically covers pensions for which the contributions attracted tax relief for 15 years in a particular country, under Article 17(3). Remember to check the wording of the relevant treaty.

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What do I need to do if my overseas pension is taxable in the UK?

If your overseas pension is taxable in the UK – because it is taxable under UK domestic law and either there is no double tax agreement or the double tax agreement states the pension is only taxable in the UK – you will need to report the overseas pension to HMRC.

You may have to do this by completing a UK Self Assessment tax return. You should enter the income on the Foreign pages.

Please note that as of 2017/18, 100% of the overseas pension is reportable in the UK. For 2016/17 and prior years, only 90% of the overseas pension income was reportable.

In order to report the amount of the pension to HMRC, you will need to convert it into GBP. Where you need to convert an overseas pension received into GBP (pound sterling), strictly speaking you should use the spot exchange rates on the date(s) you received the income. However, you can use HMRC’s published exchange rates if the income is received throughout the tax year and there are no fluctuations in the amount paid. For example, for the 2018/19 UK tax year you should use the exchange rates published for the year to 31 March 2019.

Note that if you have the overseas pension paid into a bank account which is denominated in pound sterling (in the UK, for example), then you cannot necessarily take the total of the amounts credited into the account as the amount to report. This is because your bank may charge you fees or commission, which are not deductible for tax purposes, before crediting the pension payments. It is best to follow the instructions above, so that you do not under-report the taxable amount to HMRC.

If you have a source of income in the UK from which you have tax deducted under PAYE, you may be able to arrange for HMRC to deduct the tax due on the overseas pension by adjusting your tax code (like how tax is sometimes collected on UK state pensions). This may mean that you can avoid having to file a UK Self Assessment tax return, if you do not otherwise meet any criteria to file one. For more information, see How is tax collected from my state pension?.

You should also check the position in the overseas country to determine whether the pension is reportable or otherwise affects your tax position in that country, even if it is exempt in that country under a double taxation agreement.

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What happens if foreign tax has been deducted from my overseas pension?

If foreign tax has been deducted from your overseas pension and you have established that your pension is taxable in the UK, then you should be able to claim double tax relief.

If there is a double tax agreement between the UK and the other country which stipulates that the pension should only be taxed in the UK, then you should claim a refund of the foreign taxes from the overseas authority (not HMRC). You should seek advice in the overseas country for this. HMRC should not accept a claim for foreign tax credit relief in respect of taxes which are refundable by the overseas authority.

If there is no double tax agreement, or the double tax agreement says that the overseas country may also tax the income, then you may claim foreign tax credit relief on a UK Self Assessment tax return. This will mean that you can reduce the UK tax liability on the overseas pension by the amount of foreign tax paid on the pension.

For more information on foreign tax credit relief, see What if I am liable to tax in two countries on the same income?.

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Do I need to report my overseas pension to HMRC if it is not taxable in the UK?

If the overseas pension is not taxable because it is not within scope of UK tax under UK domestic law, for example, because it is a pension for victims of Nazi persecution, then you do not need to report the pension to HMRC.

If the overseas pension is in scope of UK tax under UK domestic law, but relief is available under a double taxation agreement, then strictly speaking you should make a claim for relief under the agreement. You could do this on a form HS302 or by including details in the ‘Any other information’ box of the tax return. Income which is reported on a form HS302 or detailed in the ‘Any other information’ box of the tax return should not be included anywhere else on the return (including the Foreign pages).

If you need help to complete a tax return or form HS302, then we tell you where you can access this at the end of this page.

You should also seek advice in the overseas country as to any action required in respect of your tax position in that country.

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Does my overseas pension count as income for tax credits or universal credit?

Generally, yes. However, there are limited exceptions depending on the type of pension. If in doubt, you should contact a welfare rights adviser through an organisation such as Citizens Advice.

Please note that the rules for other benefits (such as pension credit) may be different.

Tax credits

Generally, all of a tax credit claimant’s worldwide income must be taken into account for a tax credit claim – even if the income is excluded from UK tax either because (a) the remittance basis applies and the income is not remitted to the UK or (b) the income is exempt under the terms of a double tax agreement. However, certain types of pension are disregarded, or ignored.

You can find more information about the remittance basis and tax credits at Does the remittance basis apply to tax credits?.

Universal credit

Without exception, income from overseas pension arrangements and income from foreign annuities or insurance policies are fully taken into account as unearned income for universal credit purposes. Detailed information can be found in the Advice for Decision Makers manual.

Again, this is irrespective of whether or not the remittance basis applies to that income or whether it is exempt under the terms of a double tax agreement. The specific pensions which do not count for tax credits purposes do count for universal credit.

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Where can I find more information?

You can find basic information on GOV.UK on how foreign income is taxed.

HMRC’s Employment Income Manual contains detailed information on the taxation of pension income and can be found on GOV.UK.

HMRC’s International Manual contains more on double taxation relief, including in the context of pensions.

If you have made an error in the past and have not declared your overseas pension to HMRC or have under-declared it, you may need to make a disclosure to HMRC using their Worldwide Disclosure Facility. You can find the official guidance on the Worldwide Disclosure Facility on GOV.UK. You can find some more information, including where to get help with making a Worldwide Disclosure, in our news article. You should be aware that additional penalties may apply if there is unpaid UK tax on foreign income.

The taxation of overseas pensions can be complex, especially if you have to interpret double tax treaties. The information we have provided is intended as a beginners’ guide only. You can seek independent advice from a tax adviser – we tell you how you can find a tax adviser, including through the tax charities, in our Getting Help section.

You might also be able to get further free information or help from International Pension Centre, the Pensions Advisory Service or the charity Tax Help for Older People. Our Getting help page tells you more about the different sources of assistance.

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