PAYE81750 - PAYE operation: international employments: pensioners who leave UK for permanent residence abroad
Subjects needing special care
A pension paid by an employer (or the employer's successor within the UK) to a former employee or dependants, is liable as pension income. This applies whether or not the pensioner is resident or not resident in the UK.
The CWG2 Employer Further Guide to PAYE and NICs sets out the procedures that apply when a pension starts.
The remainder of this subject is presented as follows
When is PAYE to be applied?
What you need to do when a pensioner leaves the UK for permanent residence abroad
UK state retirement pension payable to non resident
When is PAYE to be applied?
PAYE applies to all pensions paid to non-residents except where the pension arises wholly from an employment carried on abroad.
In practice, the term ‘wholly from an employment carried on abroad’ is extended to apply to pensions where
- The last ten years service in respect of which the pension is paid was abroad
Or
- The service abroad amounted to
-
- Half the total service in respect of which the pension is paid
-
- At least ten of the last twenty years
What you need to do when a pensioner leaves the UK for permanent residence abroad
You will need to consider
- The residence treatment
- If the pension is in respect of UK or overseas service
And
- The code to be operated following departure from the UK
The following guidance explains the steps to take.
Residence treatment
Action
- Refer to the Residence, Domicile and Remittance Basis Manual (RDRM10010) to consider residence
- If remaining resident - code as normal
- If not resident - refer to paragraph ‘When is PAYE to be applied?’ above to decide if the pension falls into this category
Pension is regarded as paid in respect of an employment abroad
The pension will not be charged to tax whilst the pensioner remains non-resident.
Action
- Year of leaving the UK - Code NT
- Following years - Code NT
Note: If the pensioner becomes resident again, the NT coding no longer applies - change code to include the appropriate allowances.
Pension paid in respect of employment carried on in the UK
The pension will remain liable to UK tax while the pensioner is not resident. Where a claim to exempt a pension from UK tax is made under the terms of a double taxation agreement, you must not automatically allow the claim. Please refer to PAYE81000 onwards, where the conditions to satisfy a claim to exemption are explained.
Action
- Year of leaving the UK - continue current code but reduce this by any other untaxed income, state pension / interest
- Following years - refer to RDRM10300 to decide if allowances can be given
- If allowances are due, include in the coding but reduce by untaxed income, for example state pension / interest and so on
- If allowances are not due - Code 0T and set the No Allowances indicator on NPS (PAYE103065)
UK state retirement pension payable to non resident
The pension remains liable to UK tax while the pensioner is not resident. Where a claim to exempt the state pension from UK income tax is made under the terms of a double taxation agreement, you must not automatically allow the claim. Please refer to PAYE81000 onwards where the conditions to satisfy a claim to exemption are explained.
If a claim is not made under a double taxation agreement or the DTA claim is not allowed, you must consider whether Section 810 ICTA 2007 applies - see PAYE13144.
Unless the taxpayer takes up residence in a country with which the UK has a reciprocal Social Security Agreement allowing for pension increases, their UK state pension will remain at the level it was on leaving the UK. In these cases, you should set the Static NIB indicator on the NPS record (PAYE130065).
