EIM75070 - The taxation of pension income: Double Taxation Agreements

Overview
Government pensions
Non-government pensions
Social security pensions
(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Overview

A pension may be liable to UK tax and tax in another country. This can arise where:

  • a UK resident receives a pension from another country
  • a non-resident receives a pension subject to UK tax

In these circumstances, look at the relevant double taxation agreement (DTA) to establish which country has primary taxing rights.

The following guidance is a broad outline of how DTAs usually operate. However, as the content of DTAs vary it is important to check the specific DTA.

Pension income may be covered by one of the following Articles under a DTA:

  • Government service
  • Pensions
  • Other income

The section of the International Manual starting at INTM343000 provides guidance on the treatment of the various forms of pension income under DTAs.

Government pensions

This pension type is usually under the Government Service Article of a DTA. It is normally the case that a pension that is paid by the government of a country to one of its former employees will continue to be taxed by that government. However, that is not always what has been agreed in a particular DTA. For that reason, it is important to check the instructions for each country.

INTM343020 to INTM343040 provides guidance on the treatment of government pensions. In particular INTM343040 provides a list of whether a pension source is classed as government or non-government.

Non-government pensions

This pension type is usually under the Pensions Article of a DTA. The general Pensions Article does not usually give a definition of ’pension’. Some DTAs refer to ‘pension’, whilst others refer to ‘pensions and similar remuneration’. The phrase ‘pensions and similar remuneration’ covers lump sum payments as well as pension, whereas the phrase ‘pensions’ covers pensions only.

The general rule is that pensions paid in consideration of past employment are only taxable in the country of the recipient’s residence. The same applies to annuities. However, some agreements provide that pensions may be taxed in the country where the pension arises. This is known as the source country.

INTM343130 provides guidance about pensions, whilst INTM343140 provides further guidance about annuities.

Social Security pensions

The State Pension is not regarded as a government pension. It may be considered under the Pensions Article or Other Income Article of a DTA. See INTM343190 for more information about how social security pensions are treated under a DTA.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)