Ongoing Advice

The UK Chancellor confirmed in the 2023 Spring Budget that the UK’s Lifetime Allowance (LTA) for pensions would be abolished from 6 April 2024. For the 2023/24 tax year, the LTA will remain in place, and pension providers will still be required to carry out applicable LTA checks, but if your pension savings exceeds your applicable LTA, no LTA charge will be applied.

The UK’s LTA has been the amount of savings you could take from all your UK pension savings (excluding the UK State Pension) without facing a UK tax charge. The LTA applied irrespective of the fact you are no longer a UK resident and/or taxpayer. Since 5 April 2020, the standard Lifetime Allowance has been £1,073,100. You may have certain protections against the LTA, or have applied for a LTA greater than the standard LTA. If you applied for protection in the past, you should have received a certificate to confirm the protection obtained.

Please note that Florin Pensions is not qualified to give tax advice and we do not give tax advice. However, as UK pensions advisors, we are aware of certain US/UK tax matters that can impact our clients. Given the US tax compliance complexities involved with non-US financial assets, we recommend that clients seek specialist US/UK tax advice from appropriately qualified tax and/or legal professionals.

If you have income from one country and are resident in another, you may be liable to pay tax in both countries under their tax laws. To avoid “double taxation”, the UK has negotiated double taxation treaties with countries like the US (the US/UK DTA). Thankfully, the US/UK DTA has sections specifically dealing with pensions. Whilst there is some debate amongst tax professionals on certain provisions of the US/UK DTA relating to pensions, it does enable US residents to apply for relief at source or to claim repayment of UK income tax on their pension income payments (including from personal pensions and the UK State Pension). In accordance with the US/UK DTA, that pension income should then only be subject to applicable tax in the US.

In the UK, HMRC assigns the tax code that your pension provider must use to work out how much UK income tax should be taken from your pension payment. Excluding any payment forming all or part of your UK pension commencement lump sum (PCLS), UK pension payments are made (and taxed) through the PAYE system, in the same way as earned income.

As a non-UK resident, you may not have an active UK tax code so when the first pension income payment is made, HMRC will apply an “emergency tax code” which generally results in a higher level of tax being deducted. Emergency tax codes are temporary and HMRC will usually update your tax code for future payments to a likely lower rate.

However, in our experience, it is preferrable for a US resident taking UK pension income to apply for an UK NT code and receive pension income gross of UK income tax. You are also able to claim a repayment of any UK income tax previously deducted by HMRC.

To obtain a UK NT code, specific IRS and HMRC forms must be completed. The process can take months to over a year, and we always recommend that clients start the application process well ahead of the time they wish to take any pension income payment gross of UK income tax. At Florin Pensions we frequently assist clients with the UK NT code application process.

Please note that Florin Pensions is not qualified to give tax advice and we do not give tax advice. However, as UK pensions advisors, we are aware of certain US/UK tax matters that can impact our clients. Given the US tax compliance complexities involved with non-US financial assets, we recommend that clients seek specialist US/UK tax advice from appropriately qualified tax and/or legal professionals.

As a general rule, US taxpayers (being citizens and residents) are subject to US tax on their worldwide income. This would include pension income payments drawn from a UK pension. In addition, even if pension income is not being drawn from a UK pension, the US requires informational reporting on certain non-US financial accounts exceeding applicable monetary thresholds. Non-US financial accounts can include UK pensions, for example personal pensions. The specific US tax filing requirements for non-US financial accounts, including UK pensions, can get complex. Consequently, we recommend that a US taxpayer with a UK pension discuss their filing responsibilities with their tax or legal advisor.