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HMRC internal manual

International Manual

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

Government pensions

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 Double Taxation Agreement (DTA). For that reason it is important to check the instructions for each country. The Government Service Article (Article 19) of the latest published version of the OECD Model Tax Convention on income and on capital includes the words

“Any pensions paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

However, such pension shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State.”

You will note that these words provide that pensions which are paid not only by central government (for instance to civil servants) but also to former employees of local authorities will continue to be taxable in the country that is making the payments. It is important to repeat that this is not always the treatment that has been agreed during negotiations. For that reason you should check the instructions for each country.

It should also be noted that many DTAs provide that where the person who is paid a government pension by one country is a national of (and resident in) the other country then the right to tax the pension is transferred from the UK to the country in which the person is resident. You should check what conditions for relief apply in each treaty.