6 Things to Prepare & Action for Expat Pensions and Brexit
UK Expat Pensions and Brexit: The impact of Brexit, a no deal Brexit and double taxation on pensions.
ProACT Sam clarifies how Expat pensions are impacted by Brexit, whether the UK leaves the EU with or without a Withdrawal Treaty. He also highlights the deadlines ahead and explains and what Expats can do now to be better prepared.
In this weeks vlog ProACT Sam clarifies how Expat pensions are impacted by Brexit with or without a Withdrawal Treaty and explains the deadlines ahead as review points.
Different Pensions are affected in different ways by Brexit for Expats living and working abroad - but taxation impacts are not related to Brexit.
Double taxation not impacted
Taxation is covered under international treaties for taxation, and are agreed on a bilateral basis between countries. These double taxation arrangements are not impacted by Brexit. Pensions will continue to be paid in the same way.
Double taxation bilateral arrangements are not impacted by Brexit, deal or no deal.
In Cyprus, the UK updated the double taxation treaty in 2019 so that Public Service Pensions are all taxed at source in the UK. This applies from 6/4/19.
If Expats have a Public Service Pension, their home government charges tax from 6/4/19.
Public service pensions are those created from UK or Cyprus public funds and employment, from a political subdivision of either country or from those of a local authority.
There have been implementation issues in the UK, so pension companies have not taken tax at source under PAYE so far. However, HMRC have confirmed that the tax will still be due even if a return is required for the year to 5th April 2020.
The only way to avoid receiving an unexpected tax bill to your home country is to pay on account in the UK or Cyprus. Public Service Pensions are excluded from the double taxation process. If Expats try and pay in their country of tax residence, they could end up paying twice.
Exempt Taxation
Expats have the option to elect that their Public Service Pension is taxed in their country of tax residence for up to 5 years to 2024. For this to apply, Expats must submit a letter of request to have public service pensions taxed in their country of tax.
If the UK HMRC receives such a Public Service Pension election letter from a UK Expat in Cyprus before the end of November 2019, they will pay tax on that pension in the UK in the year to April 2020.
If approved, the exemption from Public Service Pensions covers the period 1st January 2019 to 31st December 2024 only. After that date, UK tax is then applied to all Public Service Pensions.
Download your FREE sample letter
Click here to download a FREE sample letter to elect to have Public Service Pensions taxed in country of residence
You can also click here to download ProACT’s guide to How Brexit affects Expat Property, Business and Pensions
The UK State Pension is not classed as a Public Service Pension, therefore expats can continue to have this income taxed in their EU country of tax residence under the relevant Double Taxation Treaty.
This is good news as it allows Expats to use UK personal allowance for Public Service Pensions and Cyprus personal allowance for tax free UK state pension income. Some people may pay less tax under this arrangement.
For a Free Review of the impact of Public Service Pensions on Expat Tax for 2019/20 and beyond, contact us for ProACT Know How.
Inflation Proofing
The UK State Pension is indexed each year for prices and inflation. This is not a benefit for all Expats, only those Living and Working Abroad in a country with a reciprocal agreement with the UK. Not all countries have a reciprocal agreement and this includes Australia at the current time, following a dispute with the UK.
UK Expats Living and Working Abroad in the European Economic Area (EEA - i.e. all EU countries plus Iceland, Norway, Liechtenstein and Switzerland) have received indexed UK state pensions before Brexit and will continue to receive indexed pensions for 3 years after Brexit, including for the UK tax year starting 6th April 2022. The inflation increases will continue with or without a Brexit deal.
The payment arrangements for UK state pensions remain the same also. UK state pensions could be transferred into a UK or overseas bank.
For more information on how to inflation-proof pensions for those Living and Working Abroad, contact us for ProACT Know How.
Brexit Deal on State Pensions
The UK government intends to negotiate a new reciprocal pensions agreement to allow state pensions to be indexed in the future. These agreements need to be on a bilateral basis or with the EU representing those countries.
There could be a falling out like there was with Australia, but outside the EU, the UK has the freedom to make its own rules and choices and going forward, the UK can make deals with any EU country and even make good with Australia to start indexation again.
Click here to download ProACT’s guide to How Brexit affects Expat Property, Business and Pensions
6 Things to Consider, Prepare & Action for Expat Pensions and Brexit
Brexit does not impact on payment or taxation of Expat Pensions - Private or State Pensions.
Public Service Pensions are taxed in the UK from 6/4/19 for UK Expats in Cyprus
UK Expats could elect to have public service pensions taxed in Cyprus for the period 1/1/19 to 31/12/2024
Election must be made by the 1st December for any year, but only once as it runs through up to 31/12/2024 if required.
UK State pensions paid to Expats in the EU and EEA will still be indexed by inflation after Brexit - with or without a Brexit deal - for 3 years to the end of the 2022/23 tax year on 5/4/19
The UK government is free to negotiate new bilateral agreements with countries around the world to maintain state pension indexation. The UK plans to negotiate with the EU or the EU27 member states individual agreements to maintain state pensions on an ongoing basis.
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