Any questions - Finance
Q
I have heard that Cyprus is a good place to
retire to if you want to pay a low tax rate on your pension. Is this information
correct? SYLVIA CAIN, EXETER
A
In Cyprus, pension income from an overseas source can be taxed in one of two ways. The taxpayer can choose which method results in them paying less tax. With method one, the first
CYP2,000 of pension income is tax-free and you pay a flat rate of five per cent
on the remainder. However, this treatment is only available if you are a retiree
and are not in receipt of any other type of earned income (employment or
self-employment income, for example).
With the second method, you pay
tax at the normal scales rates, whereby the first CYP10,000 of total income is
tax-free; the next CYP5,000 is taxed at 20 per cent, the following CYP 5,000 at
25 per cent and everything over £20,000 at 30 per cent.
Therefore, if your
sole income was UK-source pension income of CYP11,000, you would pay CYP450
under method one or CYP200 under method two, so you’d choose method two.
The decision is made on a year-by-year basis when you complete your tax return, so you can select the method that will minimise your tax liability in any given year.
However, as a general guide, if your only income is UK-source pension income below CYP14,000 per annum, it is more tax-efficient to opt for the normal scale rates of tax to apply.
All forms of pension arising here in the UK (including UK government service pensions) are taxable only in Cyprus (and not in the UK) provided you are Cyprus tax resident.
No way, José
Q
When I move to Spain, will I be better off
paying tax in Spain or the UK? Will my ISA be liable for tax in Spain? KEVIN
WALLACE, BATH
A
You don’t have a choice – if you are
resident in Spain then you must pay your taxes in Spain, except for income
received from certain government employment or government service pensions.ISAs
and other British tax-free investments, (PEPs, TOISAs, etc) are not tax-free in
Spain (click here for more info on
Spanish property). You will need to declare your ISA for tax in Spain. You
could consider moving the capital into a structure that will be more
tax-efficient in Spain.
Of interest
Q
My wife and I have just put £50,000 of our savings
into our Turkish bank account. We opened the account a few months ago when we
went over there to purchase a villa: we intend living there for about seven
months a year. If we put the money into a high-interest account, we receive 15
per cent return net of Turkish tax. We are obviously earning more interest than
if we had left the money in our UK account and, as we don’t need to repatriate
the money, this will be good income for us when we are staying there. At what
point is the interest liable to UK tax? When it is earned, or only if brought
into the country? NIK POULTON, LONDON
A
A Unless you are ‘non-UK domiciled’, it makes no difference whether you bring
the interest you earn overseas into the UK, since it will be taxable in the UK
for the tax year in which it arises, so long as you remain UK resident. But you
can claim a credit for any tax certified as deducted in Turkey and set it
against the UK tax due. Generally, only foreigners who have not decided to
permanently settle in the UK would be considered ‘non-UK domiciled’ even though
they may be resident here. They are taxable only on what they remit to the UK.
No way, José
Claiming your pension abroad
- UK pension income is usually taxable in the country of tax residence, although government service pensions, excluding NHS pensions, are usually only taxable in the UK (except where you are resident in Cyprus).
- If there is a double tax treaty, you apply for gross payment by submitting form DT/Individual via the foreign tax authority (available from HMRC’s Centre for Non-Residents: 0115 974 2041).
- You can request a state pension forecast from The Pension Service by calling 0044 0845 3000 168. If you are already abroad, a forecast can be obtained from HMRC’s Centre for Non-residents on 0044 191 225 4811.
- State and many other pensions can be paid directly into an overseas bank account, but are subject to exchange rate fluctuations.
