Retirement Annuities paid to Non-Residents - FAQs

Frequently Asked Questions

Q1 What are Retirement Annuities and Retirement Annuity Contracts (RACs)?

A1. Retirement Annuities are paid out of Retirement Annuity Contracts. No new RACs can be taken out after 1988, but contracts started before that date can continue until the annuitant retires. RACs were mainly taken out by self-employed people and company directors.

Q2 How are RACs taxed at the present time (i.e. up to 5 April 2007)?

A2. Retirement Annuities are currently taxed at a basic rate of 22% by the companies who pay them. This will continue to apply until 5 April 2007.

Q3 I am not resident in the UK and I have been paying tax on my annuity is this correct?

A3. If you are non-resident in the UK you are normally taxable on your UK income. This means tax should be deducted from your annuity.

Q4 I am non-resident how can I receive my annuity without tax being taken off?

A4. If you are non-resident you can receive your annuity without tax being taken off if you:

  • do not have enough UK income to pay UK tax – if this applies you should complete a form AF (PDF 7K). You can get this form from the company that pays your annuity. After completing the AF send it to HMRC Residency
  • are resident in a country which has a Double Taxation Agreement with the UK under which you can claim exemption from UK tax on your annuity. (You can download a claim form or we can send you one).

Q5 If I complete a form AF how long will this application apply for?

A5. The forms AF will only apply up to 5 April 2007. Up to that time you can make a claim on the form AF if you meet all of the following conditions:

  • You are not resident in the UK
  • You are entitled to UK personal allowances
  • Your total UK income is less that your UK personal tax allowances

You can get the form AF from the company that pays your annuity. Send the completed form to HMRC Residency.

Q6 What are the changes that will happen to my RAC on 6 April 2007?

A6. From 6 April 2007 all retirement annuities, except Purchased Life Annuities, will be taxed under Pay As You Earn (PAYE) just like any other personal pension.

Q7 Why are the changes being made?

A7. Some annuitants are only liable to pay tax on part of their annuity and possibly only at the 10% starting rate. These annuitants have to make annual repayment claims to get back the tax that they have overpaid. By taxing annuities under PAYE it will mean that the right amount of tax is taken off when the annuity is paid.

Q8. I have lived abroad for some of the time. How does this affect my tax position?

A8. There are different tax situations depending on where you live and how long you are out of the UK. You should write a letter setting out your personal circumstances and send it to HMRC. RACS. Leicester and Northants LPO. Saxon House. 1,Causeway Lane. Leicester. LE1 4AE. Or you can telephone HMRC Residency Help line on : + 44 (0) 151 210 2222. Make sure that you quote your National Insurance number (NINO), if you know it.

Q9 My annuity has been exempted from UK tax under a Double Taxation Agreement – does this still apply?

A9. Yes – nothing will change unless your circumstances change – if they do you must tell us immediately.

Q10 My annuity is exempted under a Double Taxation Agreement why have you written to me?

A10. We have written to you because we cannot find any tax records for you. You do not have to complete the form attached to our letter, but we need to know the reference number on the exemption letter that we originally sent you.

Q11 Why have I received a letter and form to fill in from HMRC (Leicester Tax Office)?

A11. HMRC is starting to set up the new PAYE records for all resident and non-resident annuitants. Leicester tax office are starting off the initial work and they are writing to you because they cannot find an existing tax record for you. They need you to give some information to help us work out what your PAYE tax code number will be from April 2007. They will also be able to let you know if you are paying too much tax at the present time.

Q12 I have got more than one annuity will I get a letter and form from HMRC for each one?

A12. It is possible that this will happen, particularly if you have annuities with different companies. HMRC will try to prevent multiple letters being issued, but if you receive more than one, you only need fill in the first one, but you should send back any others saying you have already filled one in.

Q13 I have got more than one annuity will I get a tax code number for each one in April 2007?

A13. You will get separate tax code numbers if your annuities are with different companies. If you have more than one annuity with the same company you might just get one code number which will be used against all annuities, or you might get separate code numbers for each one. This depends on how the company’s payroll system is set up. We will let you know what tax code (s) will be operating for each annuity early in 2007.

Q14 I already have a tax reference number. Why do I have to tell the Tax Office what it is?

A14. We have written to you because we cannot find a tax record for you. This might be because the information provided by the company paying your annuity is slightly different from the details we hold for you. For example, your address might have changed. Just complete the first part of the form giving details of your full name, address, Tax reference number and National Insurance number.

Q15 Will I have to start paying tax (from now or from April 2007)?

A15. The new system will not start until April 2007, so nothing will change until then unless you are paying too much tax. But from April 2007 every annuitant will pay the right amount of tax. This will mean that if you should have been paying some tax at the moment, you will not have to start paying until April 2007.

Q16 I have never had to pay tax before and never had anything from the Tax Office. Will I start getting forms to fill in every year?

  • If your annuity is exempted from UK tax under a Double Taxation Agreement you will not pay tax unless you move to another country, in which case you must tell us. You will not have to complete any forms if your exempted annuity is your only UK income.
  • Even if your annuity is not exempted under a double taxation agreement you will not get a form every year unless your financial affairs are complicated or you have a lot of income. Once HMRC has worked out your tax code number from April 2007, you will only get a simple form every few years to make sure you are still on the right code number. But if your circumstances change you should let us know as soon as possible so that we can check if your code needs to be changed.

Q17 Can I get a repayment if I have paid too much tax on my annuity?

A17. Yes. You can claim a repayment for up to 6 years. This means that if you make a claim before 31 January 2007, you can be repaid back to April 2000.

Q18 Will I have to pay any back tax if I have not paid enough?

A18. It is possible that if you completed a form AF when you first started receiving your annuity, your circumstances may have changed and you should have paid some tax. HMRC will NOT ask you pay any tax which you should have paid for all years up to 5 April 2007, unless there is evidence that you have deliberately avoided paying the tax.

Q19 Where can I find out what my National Insurance Number (NINO) is?

A19. This will be on your pension or benefit book or card, or on any letter from Department of Work and Pensions (DWP). It might also be on any old wages slips or tax forms.

Q20 What happens if cannot find it or if I don’t have a NINO?

A20. Don’t worry. Not everyone has a National Insurance number. HMRC will be able to check with DWP to see if you have one, and if you don’t whether you need one.

Q21 I am still paying contributions into my Retirement Annuity Contract (RAC). Will the Pension Simplification changes being made in April 2006 affect me?

A21. The new pension simplification rules may benefit you. You should phone the HMRC Pensions help line for more information on :
+ 44 (0) 115 974 1600 or + 44 (0) 115 974 1777 (9.00 to 17.00 Monday to Friday)

Q22 My retirement annuity is quite small. Can I cash it in for a lump sum payment?

A22. You might be able to do this. You should contact the company paying your annuity or phone the HMRC pensions help line on:
+ 44 (0) 115 974 1600 or + 44 (0) 115 974 1777 (9.00 to 17.00 Monday to Friday)

Q23 My annuity is currently “excluded income” for Section 128 – will this still apply after April 2007?

A23. Your annuity will still be excluded income under Section 128 and the tax due will be limited to the tax deducted at source – the amount of tax due will be determined by the code number that should be operated for the tax year.

Q24 Does this mean that I will still pay the same amount of tax on my annuity after April 2007?

A24. We will use the information that you give us to work out your tax code and this may mean that you pay a different amount of tax in the future.

Q25 Where can I get more help?

A25. You can telephone HMRC Residency Help line on:
+ 44 (0) 151 210 2222, or write to HMRC. RACS. Leicester and Northants LPO. Saxon House. 1 Causeway Lane. Leicester. LE1 4AE.