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HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
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DT applications and claims - Types of income: Pensions and Annuities

Background

A pension is a payment that somebody receives (usually monthly) when they retire. It is normally paid by the person’s former employer.

An annuity is similar to a pension. It is defined in the majority of Double Taxation Agreements (DTAs) as

  • a stated sum
  • payable periodically at stated times
  • during life or for 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”.

An annuity is usually paid by an insurance company. It may have been bought by an employer for an employee or by the individual himself. If you have a claim or application for treaty relief for an annuity which is not paid by an insurance company you should refer the file to Technical Advice Group.

In most cases double taxation agreements give primary taxing rights over a pension or annuity to the country in which the pensioner lives. However, there are exceptions to this general rule. Because of this you should always check the specific instructions covering the country of residence of the pensioner and, if necessary, the text of the Double Taxation Agreement (DTA). Cases of doubt or difficulty should be referred to Technical Advice Group.

Government pensions

Where a pension is paid by

  • a local authority or other public body in the UK
  • the Government of the UK

it is most likely that the under the terms of a DTA the UK will retain taxing rights over the pension. However, there are exceptions to this general rule.

Some treaties give taxing rights over all pensions (including those paid by the Government) to the country of residence of the pensioner.

Other treaties provide for exemption from UK tax to be given on pensions that are paid by the Government to someone who is a national of the other country (but not where the pensioner is a national of the UK). Because of these different conditions for relief that are contained in our DTAs you should always check the specific instructions covering the country of residence of the pensioner and, if necessary, the text of the DTA.