UK pension tax changes for expats

We are aware that there are a large number of people who have moved to New Zealand who are receiving an overseas pension.  An example of this is an ex-UK resident who is entitled to a pension for serving in the military or working in the health service.

Traditionally, this has been taxed at source in the UK, similar to PAYE deductions on NZ National Superannuation.  The UK pension income is included in the taxpayer's New Zealand tax return with a credit claimed for the tax paid in the UK.

Recently, IRD have reviewed the tax agreement with the UK and made the following observations:

• The residency country (NZ) has the right to tax pensions
• Tax deducted from pensions in the UK cannot be claimed in New Zealand
• The source country (UK) does not have the right to deduct income tax
• The source country (UK) needs to refund tax deducted from pensions

What this means for the NZ resident taxpayer:

• You need to include UK pension in NZ return as usual
• There will be no claim for tax deducted in the UK (effectively being taxed twice)
• You need to apply to UK tax authorities to have the taxes incorrectly deducted refunded to you
• Depending on the amount of the UK pensions, you may fall into the NZ provisional tax regime.

There are forms and procedures for claiming the tax credits from the UK, but there will be timing issues (and foreign exchange fluctuations) with receiving these.  You will also need to ensure that the UK tax authorities cease making deductions. 

If you think that these changes may apply to you, and to find out if you do fall in to the NZ provisional tax regime, please give us a call on 03 578 3386 or email brian@tva.co.nz. We will be happy to help dealing with the tax authorities on your behalf.