JC3

Hi,
Does anyone know for sure if relief from UK Income Tax is available on the UK State Pension under the UK/Malaysia Double Taxation Agreement (DTA), for Malaysia residents?

I’ve already queried this with the HMRC, but their reply was to check the DTA myself. I suppose that's what Self Assessment means...

When I read the DTA it suggests tax relief is available on pension income. However I also looked at a separate document - the Digest of Double Taxation Treaties (Table of Territories) in which the Malaysia Section includes a side note that states ‘No relief on State Pension’ (Note 4).

I assume some MM2H’ers won’t need to bother with this issue or pay UK tax on their State Pension provided their total UK source income is below their UK Annual Personal Tax Allowance of £10,600. That said, I note the UK government has been considering withdrawing the Personal Tax Allowance from non-residents - a decision delayed until after April 2017.

Any advice appreciated.
Thanks.
JC3

bakedbean

Of course I am way too young to have a State Pension but my understanding was that it always attracted tax in the UK. As you say, currently that would fall into tax-free income, but if they take that away in the UK, we are somewhat stuffed.

OriginalSunshine

If you are a Malysian resident why do you need to get the pension paid in the UK?

bakedbean

This is the State pension not personal pension JC is talking about.

InVinoVeritas

In the 1996 DTA between the UK and Malaysia para 19(1) suggests a pension would only be taxable in Malaysia (and Malaysia does not tax foreign income).

https://www.gov.uk/government/upload...1/malaysia.pdf

Not the easiest document to understand though.

OriginalSunshine

State Pension for people living overseas | nidirect

Again, why not get paid your state pension abroad?

JC3

Hi Original Sunshine,

Thanks for your response. I fear I may be missing your point.

My wife's UK State Pension is paid gross, and income tax is then deducted through Self Assessment, as her total UK income exceeds the annual Personal Allowance. I am not old enough for State Pension yet. It's not often I can say "I'm not old enough" for anything these days!

If you live abroad your UK State Pension can be paid in two ways, either:

1. Into a UK bank account or building society. Or
2. To your bank account in the country that you live in, provided it's one of the countries listed below (note Malaysia isn't one of them). If not, your State Pension has to be paid in a UK bank account or building society, or by cheque sent to your home address.


•Antigua
•Australia
•Austria
•Bahamas
•Bangladesh
•Barbados
•Barbuda
•Belgium
•Bulgaria
•Canada
•Channel Islands
•Colombia
•Cyprus
•Denmark
•Dominica (Commonwealth)
•Dominican Republic
•Egypt
•Finland
•France
•Germany
•Greece
•Grenada
•Guyana
•Hong Kong
•India
•Indonesia
•Ireland
•Israel
•Italy
•Jamaica
•Luxembourg
•Malta
•Mexico
•Monaco
•Morocco
•Netherlands
•New Zealand
•Nigeria
•Norway
•Pakistan
•Peru
•Poland
•Portugal
•San Marino
•South Africa
•Spain
•St Kitts-Nevis
•St Lucia
•St Vincent and Grenadines
•Sweden
•Switzerland
•Thailand
•Trinidad and Tobago
•Tunisia
•Turkey
•United States of America
•Yemen


JC3

InVinoVeritas

Where did you find that list JC3?

JC3

Hi IVV,

I found the country list here:

www.lawontheweb.co.uk/legal-help/state-pensions

There's a similar one here:

UK state pensions | ExpatMoneyChannel

JC3

InVinoVeritas

Hi JC3,

I think I understand the problem better now which occurs because you wife has other UK income (which presumably, like rental income, is taxable in the UK) and her pension which is gross is included in her taxable total. HMRC are saying that under a DTA, there would normally be relief on the tax you pay in your host country.

Two problems, firstly you presumably pay no tax in Malaysia so no question of relief and secondly determing what amount of tax is attributable to the pension as against the other income.

In any case, it is a conversation with HMRC to ask if the pension should be excluded from the tax calcs on the basis your wife is non-UK resident and would not pay any tax in her host country but I doubt they can do this. It is inequitable that she should suffer both the tax on the pension and the removal of indexation by virtue of living in Malaysia.

Incidentally, it is just possible that the country list is not up-to-date and that Malaysia is now included.

Cheers IVV

NeonHippy

Hi JC3 I received a very similar response when I asked HMRC for clarification of the DTS between UK and Malaysia. In particular I wanted clarification of note 2 as I was not planning on bringing all of my company pension into Malaysia each month.

As far as the state pension goes, HMRC will claim that no tax is paid on a state pension, it is always paid gross. It is your other income that is taxed if the combined sum exceeds your tax threshold. So if you are tax resident in Malaysia and your personal pension is remitted to Malaysia (tax free in MY) you should not be taxed on your state pension. But, as I read it, if you have other sources of UK income such as rent you may find the state pension contributing to your personal allowance even if paid to a bank outside the UK.

This is probably also relevant to retired civil servants and forces personnel whose pension is always taxable in the UK. Once they start drawing their state pension they will find themselves paying more tax on their civil service pension since more of it now exceeds thein personal allowance.

JC3

Thanks IVV and NeonHippy for your responses

I’ve dug into this a little more.

It appears Income Tax on the State Pension will be payable in the UK unfortunately, despite the UK/Malaysia DTA.

The HMRC Double Taxation Manual - DT1927 - Non-residents: UK income: Pensions: Government etc pensions, has this to say:

In general, pensions paid by the United Kingdom Government or a United Kingdom local authority to a resident of an agreement country are taxable in the United Kingdom, but refer to the relevant double taxation agreement to see whether the circumstances of a particular pensioner might entitle him to exemption from United Kingdom tax (see in this connection DT224).
(Source: Non-residents: UK income: Pensions: Government etc pensions).


On reading the statement above, together with the side note (Note 4) in the Digest of Double Taxation Treaties (Table of Territories) Malaysia Section which states ‘No relief on State Pension’, I believe my wife will have to pay UK income tax on her State Pension income (i.e. because her total UK income including State Pension exceeds her Personal Allowance).

I'm about to write the cheque.
So if anyone knows different, please shout now!

JC3

OriginalSunshine

Get your state pension paid into an HSBC account in Jersey or anywhere else that doesn't charge income tax. Switzerland. Whatever.

Make sure your wife is non resident in the UK. Then she only has to pay tax on her UK income, which as far as I understand doesn't include the state pension as that is remitted to another country with a double taxation treaty so you don't have to pay in the UK.

Then transfer the pension to Malaysia as and when you need it. Tax free.

InVinoVeritas

Personally, I don't think that will work. The problem is having UK income which, with the pension, takes Mrs JC3 into the taxable band. Presumably HMRC know she is non-resident but will not look beyond that as to whether she is taxable in her host country or not (how could they know). Any relief would only be available against any tax due in the host country and then only if there is a DTA between the UK and the host country which specifically provides for this. Intermediary bank accounts are of no significance tax-wise.

Regrettably, JC3, and much as it sticks in the craw, I think you have to write the cheque.

bakedbean

Mrs JC3 could write the cheque