UK Pensions and Non-Residents
By Spectrum IFA
This article is published on: 18th August 2014
A couple of things have come out of the UK government’s office recently. Both are important, but for some expatriates, one of these is going to have a bigger impact than the other.
The first was the result of the consultation on the UK pension reform, which was published in July (and we can now expect a Pensions Bill in the Autumn). The outcome is that not much has changed from what had already been proposed, which you can read about in my previous article at https://spectrum-ifa.com/proposed-uk-pension-changes/
However, a couple of things have been fine-tuned. For example, the age from which you will be able to take your total pension pot as cash on the grounds of triviality will be possible from age 55, rather than the current age 60. Also for those who still prefer the security of a lifetime annuity, the rules will be changed to allow a longer guarantee period than 10 years but of course, this will reduce the amount of the annuity at start.
One important point that has been clarified concerns pension transfers from Final Salary Schemes to Defined Contribution Schemes (DCS). We now know these will still be allowed, but only from those schemes that are funded. Therefore, members of unfunded public sector defined benefit schemes will not be allowed to transfer their benefits to a DCS. This may not appear to be an issue – after all who would want to transfer their pension benefits out of such schemes? In effect, the government – or in reality, the UK taxpayer – underwrites the cost of these pension schemes.
Well this brings me to the second ‘thing’ …….
……. non-residents could lose their UK tax-free allowance on UK taxable income.
For those of you who have not already picked up this news, this is something that could come into effect in April 2015. A consultation has been launched by the government with a deadline of 9th October for interested parties to respond.
For French residents, this concerns those who are receiving public sector pensions, UK property rental income and/or UK earnings. If it comes into effect, the result will be that for a basic rate UK tax payer, unless your average tax rate in France is at least 20%, then your combined UK and French tax bill will be higher. This is because the method that is used to give relief from double taxation in France, limits the amount of that relief to the amount of French tax attributable to such income. Based on the 2014 rates, for a couple in France this would mean that they have to have combined taxable income of at least €112,000 per annum or for a single person, at least €57,000. If you are below this level, then you would be affected.
My initial reaction to the above was that those with public sector pensions are being treated unfairly. They cannot transfer their pension benefits out of the current scheme and so are forced to be subject to UK tax with the possibility of paying up to £2,000 a year more (based on UK 2014-15 rates), but they are unlikely to get the full relief from France. However, thankfully, the UK government has recognised that as the public sector pensions are, in theory, only taxable in the UK, then it is quite likely that entitlement to the personal allowance will be maintained.
Sadly, not so for property rental income (or earnings), as the UK government considers that people will usually be also liable to tax in their country of residence. However, the method of the calculation used to give relief from double taxation is identical for all these three categories of income, which is based on taking in to account the gross amount of income (i.e. before UK tax deduction). Had the previous method of calculating the relief still been in operation, there would not be any potential issue, since the calculation used the amount of income after deduction of UK income tax.
The other change that is taking place in the UK that affects non-residents who own property is the introduction of capital gains tax for properties sold after April 2015. When combined with the potential increase in UK income tax on any property rental income, this makes holding property for investment purposes a lot less interesting.
Are you affected by these changes? If so, please feel free to contact me if you wish to have a confidential discussion to see if your situation can be improved.
Now is also a good time to mention that we are taking bookings for our Autumn client seminars, which will be taking place across France – “Le Tour de Finance – Bringing Experts to Expats”. Our industry experts will be presenting updates and outlooks on a broad range of subjects, including:
- Financial Markets
- Assurance Vie
- Pensions/QROPS
- Structured Investments
- French Tax issues
- Currency Exchange
The date for the local seminar is Friday, 10th October 2014 at the Domaine Gayda, 11300 Brugairolles. This is always a very popular event and so early booking is recommended.
But if you are reading this further afield, you may be interested in attending one of our other events:
Wednesday, 8th October – St Endréol, 83920, La Motte, the Var
Full details of all venues can be found on our website at Le Tour de Finance
Places for our seminars are limited and must be reserved, in advance. So if you would like to attend one of the events or you would anyway like to have a confidential discussion about any aspect of financial planning, please contact me either by e-mail at daphne.foulkes@spectrum-ifa.com or by telephone on 04 68 20 30 17.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or on the mitigation of taxes.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter