Oops218

Hi there,

Just found another question I am very concern:

I read somewhere if you received lump sump pension before 55 years old, it would be regarded as non recognized pension , so the tax would be up to 55% .

Is it true？ I didn't know this rule so had chosen to receive as lump sump pension after I left Canada but it is from my last job In Canada.

I have tried to find more information from Hmrc website but not clear and can't search the proper answer.

Can anybody with this experience help clarify ?

Thanks

Oops218

Maybe called Unauthorised payment. Is it a stupid mistake? I don,t need this money , just don't know much about the difference. The pension gave you two options, one is lump sum, another maybe RRSP . But I am not living in Canada anymore and thought lump sum to my bank account would be much easier. Never expect this 55% tax ?

ann m

What kind of plan were you contributing into? Was it a regular pension or an RRSP?

If you are "cashing" out pension/retirement funds, the financial institute will likely withhold taxes. Once you file your last tax return, you may get something back.

But unless the funds were transferred into another pension vehicle, taxes are due. You never paid taxes on the $$ going into the plan so the govt is going to get them somehow! 😉

Oops218

Thanks. Unfortunately it is from previous company's pension plan, not RRSP. But I got lump sum after I just moved to UK as resident, not before. Canada charged 25 % withhold tax but will UK charge 55% tax again?

ann m

I don't know UK rules - but the two countries have tax treaties so you shouldn't be hit twice.

Essentially, if you've cashed out the pension in Canada, and then paid the withholding tax on it, right now it's just "cash" that you are bringing back to the UK.

That's my amateur thought anyway - someone else can hopefully confirm.

Aviator

However if it is cashed out after arriving in the UK and becoming a tax resident, it may be treated as income. If it was in the bank in Canada whilst the OP was still a tax resident of Canada, that would have been different.

Shirtback

You might do well to ask the question in the 'Moving Back to the U.K.' Forum.

Aviator

I would be asking an accountant in the UK, not on a forum if there is a lot at stake.

Shirtback

Well yes, that too (with reservations/provisos*). But as OP asked the question here, referring him to the MBTTUK section, where there are people who have experience with this scenario, doesn't seem to be a bad place to start ...

* Unfortunately, I've had experience where I had to tell a UK accountant (& vice versa) where to look up/find out what he's supposed to do/tax laws. ...

JonboyE

I do not understand why the OP thinks he will have to pay 55% tax.

Oops218

Thank you all,

Just found this from Hmrc website: Have called offshore Hmrc today but no real answer. It would be a good news if my understanding is wrong but have read 55% rate from different place

4. Higher tax on unauthorised payments
You’ll pay up to 55% tax on payments from your pension provider if they don’t follow the tax rules for getting money from a pension.

These are called ‘unauthorised payments’.

Unauthorised payments include:

the part of a tax-free lump sum that’s worth more than 25% of your pension pot
any payments before you’re 55, unless you have the right under your pension scheme
a ‘trivial commutation’ lump sum worth more than £30,000
regular payments after you’ve died
Some companies advertise personal loans or cash advances if you take your pension early. These payments are unauthorised and you have to pay tax on them.

JonboyE

Yes, but these are the rules for UK registered pension schemes. They do not apply to Canadian registered pension schemes.

Oops218

Thanks Jon.
It is so helpful. The money is still in Canada account. Since I have to file world income In UK, does that mean this lump sum will be my income not tax free? I have called HMRC helpline , but they are not sure. It is frustrating.

JonboyE

It is many years since I left the UK and I don't claim any particular knowledge of current tax practice there. Also, some employer schemes are actually RRSP based. I don't know if this is the case here.

IF it is from an employer pension scheme the gross amount will likely be taxable income. You will claim a foreign tax credit for the 25% withholding tax. IF the underlying scheme is an RRSP then it will not be taxable income in the UK but you will not be able to claim a foreign tax credit.