06 02 2017

LITRG Calls For UK Tax Relief For Foreign Pensions

The Low Incomes Tax Reform Group (LITRG) has called for the UK Government to rethink a proposal that would see UK residents paying more tax if their pension is from an overseas provider.

Where a pension is paid to a person who is resident in the UK, by or on behalf of a person who is outside the UK, only 90 percent of the income arising to that recipient in the tax year is liable to tax (called the 90 percent rule). According to the LITRG, the Government says it is fairer to pensioners with UK-only pension income if this changes to 100 percent from April 6, 2017.

But LITRG says it is potentially unfair to those in receipt of foreign pensions because they can incur extra costs when it comes to getting that money. The costs are disproportionately felt by those on low incomes, such as when factoring in administrative costs, it says.

The group has suggested that some limited form of relief – such as a 10 percent deduction from foreign income up to, for instance, twice the personal allowance – could be retained to soften the blow for those on lower incomes. It said this would help those who need the most help because administrative costs may be the same whether a pensioner has a four-figure annual pension or a six-figure one.

"A capped 10 percent rule would benefit all recipients of foreign pensions to some degree but especially the disproportionate impact of those costs on people with smaller foreign pensions," Anthony Thomas, LITRG Chairman, said. "The same rule could apply for calculating tax credits income."