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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

Pensions paid for service carried on outside the UK

Some pensioners receive occupational pensions paid from the UK, but will have spent all of their working years, or a substantial period of service, performing duties outside theUK.

Strictly, ITEPA03 charges all pensions paid from the UK to income tax. However the PAYE regulations set out special provisions that exempt the pension from PAYE where the pension arises from employment wholly carried on abroad. The instruction at EP8281 applies only to non-resident pensioners.

When an employee has been non-resident and worked outside the UK for complete tax years, then the pension is exempt from the operation of PAYE.

An employment is regarded as having been carried on abroad if

  1. 1 the last ten years service in respect of which the pension is paid was abroad


  1. 2 the service that was carried out abroad amounted to half of the total service in respect of which the pension is paid


  1. 3 covered at least ten of the last twenty years.

UK duties

Any year where an individual performs duties in the UK cannot be a year when the employment was carried on abroad. Years of service refer to fiscal years. So any tax year in which an individual performs any duties in the UK, other than merely incidental duties, cannot be counted as a year of foreign service.

Example 1 – last ten years of service performed abroad

An employee commenced employment with a UK supermarket chain in 1986 in the UK. In 1988 the employee moves to Paris and worked in France until retiring in 2000. The employee has remained not resident in the UK and is now receiving a pension.


The employee has performed all of his duties for the last 12 years of employment outside the UK. As the last ten years of service have been performed outside the UK then PAYE will not apply to the occupational pension whilst the pensioner remains not resident in the UK.

  1. Example 2 – total length and location of service

An oil engineer has worked in the UK and overseas for the same UK company as detailed in the table below. The employee retired in 2000, remained not resident and has started to receive an occupational pension for the employment.

Whilst working abroad no duties were performed in the UK.

Date Location Length of service
Jan 1975 – Dec 1977 UK 3 years
Jan 1978 – Dec 1980 Saudi Arabia 3 years
Jan 1981 – Dec 1985 Brazil 5 years
Jan 1986 – Dec 1993 UK 8 years
Jan 1994 – Dec 1996 Singapore 3 years
Jan 1997 – Dec 2000 Australia 4 years
total length of service   26 years
total years worked UK   11 years
total years worked abroad   15 years


This employee has not spent the last ten years of service abroad. He only spent 7 years in Singapore and Australia following UK departure in December 1993. Therefore you should consider the second test that EP8281 provides - was half the total length of service performed abroad?

To determine this you should take the total of years worked abroad as a fraction of the total length of service and multiply this figure by 100. Using the above example that gives 15 divided by 26 (0.577) X 100 = 57.7%.

You then need to also consider if at least ten of the last twenty years service was performed abroad?

Between January 1981 and December 2000 this employee worked for 12 years abroad. Therefore

  • Over half of the total service has been performed abroad.
  • At least ten of the last twenty years service has been performed abroad.

In this case the employment is regarded as carried on abroad, and PAYE would not be applied to the occupational pension whilst the pensioner remains not resident in the UK.

Pension paid for same employment

Importantly, you should note that the pension must be paid for employment with the same employer. In other words a pensioner cannot combine the length of overseas service performed with a number of different employers.

Successive employments

Periods of employment with different members of the same group of companies should be treated as a single employment.

Length of service

You must consider the length of service to the employer outside the UK, and not the length of time spent outside the UK. A pensioner may well have retired a few years before their occupational pension commences.


When you identify a case where an occupational pension is paid for overseas service then you should inform the tax office that is responsible for the payroll of the company that is paying the pension that EP8281 applies. There is no need to consider exempting the pension under the terms of a Double Taxation Agreement (DTA).

Entire employment was carried out abroad

In these cases the length of service for which the pension is paid is not relevant.When someone has worked entirely outside the UK (for a UK employer) for the whole period of their employment EP8281 applies so that the pension is outside the scope of the PAYE regulations.

Example a non-resident of the UK is recruited by a UK company to work for it in another country. The person is employed for 8 years and, at retirement age, becomes entitled to be paid a pension by the UK employer.


As the person spent the entire period of their employment outside the UK then PAYE will not apply to the pension whilst the pensioner remains not resident in the UK.