Tax on pensions

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DMC
Posts: 1262
Joined: Thu Nov 16, 2006 9:17 am

Tax on pensions

Post by DMC » Thu Mar 14, 2019 1:00 pm

I have a small private pension policy dating back to when I lived in the UK. (I am British). That will start to pay out when I am 60 in a couple of months. I have the option of taking a portion of the pension pot as a tax-free lump sum. Of course that means free of UK tax but would I have to pay Finnish tax on that lump sum, if I take it?

I will also receive a small monthly payment after this. Am I correct in assuming I need to pay tax in Finland on that, and not pay tax in the UK?



Tax on pensions

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FinnGuyHelsinki
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Joined: Sun Nov 08, 2009 8:52 pm

Re: Tax on pensions

Post by FinnGuyHelsinki » Thu Mar 14, 2019 1:17 pm

DMC wrote:
Thu Mar 14, 2019 1:00 pm
I have a small private pension policy dating back to when I lived in the UK. (I am British). That will start to pay out when I am 60 in a couple of months. I have the option of taking a portion of the pension pot as a tax-free lump sum. Of course that means free of UK tax but would I have to pay Finnish tax on that lump sum, if I take it?

I will also receive a small monthly payment after this. Am I correct in assuming I need to pay tax in Finland on that, and not pay tax in the UK?
See https://www.vero.fi/en/individuals/tax- ... om-abroad/


DMC
Posts: 1262
Joined: Thu Nov 16, 2006 9:17 am

Re: Tax on pensions

Post by DMC » Mon Mar 18, 2019 3:56 pm

Unfortunately that site doesn't answer my question so I called Vero to ask them. The lady I spoke to didn't know the answer so she promised to find out and call me back, which she did today. The answer was a definite maybe. It seems I have 4 options:
  • Don't take the lump sum, so no tax payable on it. Obvious.
  • Take the lump sum and declare it on my tax forms at the end of the tax year. Vero will then decide whether to tax the lump sum as income or treat it as pension. So I would have to take the lump sum and take a chance on whether I will need to pay tax on it.
  • Decide to take the lump sum and ask Vero to adjust my tax %age now on that basis, rather than waiting to possibly be taxed later. Of course if I didn't then take the lump sum I would be paying tax on non-existent income.
  • Apply for a decision now. This is the only way to get a definite decision in advance of having to decide whether to take the lump sum. All fine and dandy except there is a 420 euro fee to ask for that decision. Paying the tax authorities to decide how much tax I have to pay is, IMHO, ludicrous.
I was hoping someone else had already gone through this and could tell how it worked out.


DMC
Posts: 1262
Joined: Thu Nov 16, 2006 9:17 am

Re: Tax on pensions

Post by DMC » Wed Mar 20, 2019 2:48 pm

Answering my own question in case anyone searching for info later finds this.

I spoke to HMRC in the UK. They quoted article 19 of the treaty between UK & Finland covering double-taxation and said pensions should only be taxable in the country where they arise (UK in my case) and this also covers any lump sum taken from the pension pot. The Vero contact I spoke to was very pleasant and helpful but the HMRC (also pleasant and helpful) seemed a lot more knowledgeable and able to give a definite answer.


Moving Again
Posts: 42
Joined: Sun Mar 28, 2010 12:03 pm

Re: Tax on pensions

Post by Moving Again » Tue Mar 26, 2019 10:36 pm

Interesting. I'm in a similar position in that I started getting one pension last year, and am about to get another. I paid tax here on the first lump sum (incidentally less than I expected) and asked for the monthly payments to be covered by my tax percentage. And I was going to do the same with the new pension, but having seen your post, I'm not sure I should.

I notice you said yours is a private pension (as are mine), but article 20, paragraph 3 refers back to article 19 and seems to say that it's only public sector pensions that are taxed in the arising state:
"services rendered in connection with a business carried on by a Contracting State or a political subdivision or a public community or a local authority thereof".

Time to make some phone calls...


DMC
Posts: 1262
Joined: Thu Nov 16, 2006 9:17 am

Re: Tax on pensions

Post by DMC » Wed Mar 27, 2019 7:29 am

The HMRC official I spoke to did not specifically mention article 20 but he was clear that UK pensions, including lump sums, should not be taxed in Finland.

My understanding is that article 20 says article 19 also applies to public sector pensions and it doesn't say article 19 only applies to public sector pensions. If it intended to say article 19 only applies to public sector pensions it would also be saying articles 16 and 17 only apply to public sector pensions and that would make no sense. Of course it would be good to get some official confirmation of that so if you discover anything please post the information here. I will also check it.


Moving Again
Posts: 42
Joined: Sun Mar 28, 2010 12:03 pm

Re: Tax on pensions

Post by Moving Again » Wed Mar 27, 2019 4:51 pm

I phoned the UK tax office and was told that article 19 only applies to commutated pensions, i.e. when you take the whole pension in one go. Such a pension lump sum would indeed be taxed in the UK (and Vero will probably ask for a bit more, knowing Vero). Why article 19 doesn't mention this I don't know. But apparently it does not apply to 25%-free-of-uk-tax lump sums, or to any monthly payments. These have to be declared to Vero*. Of course if your UK income is over your personal allowance, a monthly pension is taxed in the UK first, and you then tell Vero, so they can take some more, possibly, under the double taxation agreement, depending on whose tax rate is higher. Having said that, the UK tax office is going to double-check and call me back (or email me).

* I made a one-off payment on my pension lump sum, and was pleasantly surprised at how little tax they asked for. They gave me a separate tax card for this, and pehaps the tax was lower than expected because it's treated as a pension, not income.


DMC
Posts: 1262
Joined: Thu Nov 16, 2006 9:17 am

Re: Tax on pensions

Post by DMC » Thu Apr 04, 2019 2:48 pm

Moving Again wrote:
Wed Mar 27, 2019 4:51 pm
* I made a one-off payment on my pension lump sum, and was pleasantly surprised at how little tax they asked for. They gave me a separate tax card for this, and pehaps the tax was lower than expected because it's treated as a pension, not income.
I am still trying to sort this out and it occurs to me that the way the Finnish tax seems to work may be confusing us here. You say you "made a one-off payment on my pension lump sum, and was pleasantly surprised at how little tax they asked for". So does this definitely mean they treated the lump sum as taxable income?

When I contacted Vero they said they do not tax UK pensions but the pension income is taken into account when calculating the tax due on Finnish income. Is it possible that there was no tax on the lump sum as such but, as a result of the higher income level the lump sum gave you, you had to pay more tax on your other income? Would this explain why the one-off payment you made was less than you expected?

Roughly what %age of your lump sum was the one-off payment?


Moving Again
Posts: 42
Joined: Sun Mar 28, 2010 12:03 pm

Re: Tax on pensions

Post by Moving Again » Tue Apr 09, 2019 1:30 pm

Sorry, missed your reply.

It was about 20%. I've just received a call from HMRC, and it looks like you were right - only the UK can tax UK pensions:) They're sending the details of what I need to say to Vero/how to claim back the tax already paid.

So as you suggested, the only impact here is the possble impact on income level, which might lead to a higher tax %. Or not. Time to phone Vero again...


DMC
Posts: 1262
Joined: Thu Nov 16, 2006 9:17 am

Re: Tax on pensions

Post by DMC » Fri Apr 12, 2019 9:31 am

That sounds like it will work out well for you, which is good to hear.

If the info you get from HMRC and/or Vero could help presenting things to Vero to avoid them incorrectly charging others ( especially me :lol: ) then please do share. Also out of curiosity it would be interesting to know how Vero respond when you approach them with the info from HMRC. Helpful or awkward, fast or slow ...


Moving Again
Posts: 42
Joined: Sun Mar 28, 2010 12:03 pm

Re: Tax on pensions

Post by Moving Again » Wed May 08, 2019 10:26 pm

Not much to update. The Vero international department never did phone back, so I've both emailed and written, asking for a review under the Mutual Agreement Procedure pursuant to Article 28 of the UK/Finland DTA.


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