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HMRC internal manual

International Manual

DT applications and claims - Types of income: Pensions and annuities

Government pensions continued

Because the “Government Service” article of many Double Taxation Agreements(DTAs) includes pensions that are paid out of local authority funds the UK retains taxingrights over these payments and exemption for any pension of a “governmentalnature” is not available.

However, many early agreements talk only about pensions paid by the Government (meaningcentral Government). Because of this limitation in the scope of the Government servicearticle, exemption from UK tax on pensions that are paid by a Local Authority is availableunder the general pension article of those treaties - see INTM343040.

The UK takes a restrictive view of what employments properly fall within Article 19.Generally, relief from UK tax will not be available where individuals aredirectly employed (whatever their job) in central, regional or local government service.Therefore, civil servants directly employed in central government, those who are directlyemployed in local or regional government, and members of the armed forces are clearlywithin the scope of the Article. By contrast, employment in nationalised industries isoutside the Article. That is because the services (the work done) was not rendered to the”State” as such. Those employed in privatised concerns are clearly outside theArticle.

In between these extremes it may be much less clear how the wording applies. There may bea blurring of distinctions between public and private sector where employment is with anagency, board or other statutory body, especially where organisations have been privatisedor decentralised. Also, structural reorganisations may make it hard to determine whichentity is making a payment.

An example of the consideration that needs to be given to these cases is the treatment ofa National Health Service pension. Employment in the UK’s National Health Service isnormally with health trusts, or with a hospital board of management. The UK’s view is thatthese employees are not within the Article. They are clearly not employedby the state as such. On our interpretation a NHS pension is not paid in respect ofservices rendered to a local authority.

Such cases are considered on their facts, and it may be necessary to consider the terms ofthe law under which a body was set up, and its constitution. Cases of doubt or difficultyshould be referred to Technical Advice Group.