How to avoid paying tax

[jordanbasset]

That is more or less the situation, you cannot be resident nowhere

Friend of mine took up residency in Cyprus and now has his pension taxed there, if my memory serves me right this is 5%. But the snag is you have to be resident there.

 

[Angele]

I'm with Sighmoon's interpretation of the matter.

Even if you are non-resident, not ordinarily resident and not UK domiciled, any income from employment arising from the UK is still taxable in the UK. For these purposes pension income is, I believe, treated as employment income.

Of course, to the extent you are resident in another country, then you may or may not be liable for income tax there. If you are, chances are that a double taxation treaty will be in existence that at least means you won't pay tax twice.

Any income from savings would not be taxable in the UK, which is a good reason for commuting pension income and taking a lump sum. But, not applicable if you are talking about a state pension and too late for any occupational scheme if it is already in payment.

 

[Angele]

Extract from HMRC guidance document entitled "Residence, Domicile and the Remittance Basis" (updated in February 2010), under the heading "Earned income - when you are not resident in the UK":

Pensions

Although you are not resident in the UK you will still pay UK tax on most
pensions from sources in the UK.

You will not pay UK tax on pensions from sources outside the UK.

The table at 10.10.3 will help you see what UK tax you will pay on your
income from pensions.

All entries in the column headed "UK pension" of table 10.10.3 ("How income from pensions is taxed in the UK") indicate that an individual is liable to UK tax on UK pensions whatever their residence/domicile position.

So, assuming your pension relates to benefits accruing whilst you were employed in the UK, then you will be liable for UK income tax whatever your status.

Sorry!

 

[nimbusgb]

'There are only two certainties in life, death and taxes'

There is therefore an easy way to avoid paying tax

 

[chinita]

As others have said, you must be Resident somewhere and pay Tax somewhere.

I went through this some ten years ago; there is no escape.

However, to ease the pain (slightly) you may be able to get an Accountant to communicate to HMRC that your income and Tax Return figures are static and not going to change. This may result in your not having to submit an annual return.

My accountant did this for me and I have a (framed) latter from HMRC declaring that I no longer need to submit a return unless my circumstances change - which, of course, they won't !

 

[rallyveteran]

As others have said, you must be Resident somewhere and pay Tax somewhere.

I went through this some ten years ago; there is no escape.

I don't think this is correct. It certainly wasn't for me as I wasn't resident anywhere for several years about a decade ago, and sheltered a large gain that HMRC would have taxed if they could. They certainly knew all about it.

I'm obviously not up to date, but a few minutes googling suggests it is still possible not to be resident anywhere. E.g.:

http://www.expatforum.com/expats/fr...5156-tax-non-resident-purchases-property.html

The OP's problem is that income from pensions in payment in the UK is taxable here. Part of the justification for this is that contributions and some of the investment growth on pension funds are tax-free, so if pensions weren't taxable money could pass from employer to employee without any tax.

 

[Angele]

I don't think this is correct. It certainly wasn't for me as I wasn't resident anywhere for several years about a decade ago, and sheltered a large gain that HMRC would have taxed if they could. They certainly knew all about it.

For the purposes of UK taxation (which is the only one I feel vaguely competent to pass comment on), I agree with Rally Veteran.

From the perspective of the UK, everyone must have a country of domicile. If it is not the UK then it must be somewhere else.

They care whether you are "UK resident" or "not UK resident", but the question of which country you are resident in, if you are not UK resident, only crops up if there is an issue relating to a double taxation treaty with that other country. So, from HMRC's perspective, there is nothing to stop you being neither resident in the UK nor resident anywhere else.

 

[Tranona]

The OP's problem is that income from pensions in payment in the UK is taxable here. Part of the justification for this is that contributions and some of the investment growth on pension funds are tax-free, so if pensions weren't taxable money could pass from employer to employee without any tax.

Yes, that is the principle behind tax on pensions. The contributions are offset against tax at you highest marginal rate. Funds are taxed at a lower rate than personal tax (used to be tax free until a certain Gordon Brown removed that). In return you pay tax on the pension payments - for most people at the basic rate minus your normal allowance. This means for a 65 year old the first nearly £10k of pension (whether occupational or state) is paid tax free. Plus of course with many occupational and personal pensions you can take 25% of the fund value tax free.

 

[Nostrodamus]

Lets face it this is complicated stuff and a lot has to be taken into account.
Now I hate to say it but I am going to. I should imagine there are those with far more assets than I have and may have their own accountants. They either do not frequent these pages or the accountants are so creative then it is something they do not want to pass on.
I do think the RYA or Crusing Association could orshould have looked into it to advise members or it would make a good story in one of the boating publications. I am supprised that there are many out there like myself in this position but I have not heard from one who has taken proffesional advice.
they are probably like me and don't want to pay out lots of money to be told you cannot do anything.
I know the merchant navy and long haul workers get a reduction in tax for being out of the country for so many days but why can't we get a reduction for not being there at all?

 

[Angele]

I know the merchant navy and long haul workers get a reduction in tax for being out of the country for so many days but why can't we get a reduction for not being there at all?

For exactly the reason that Rally Veteran and Tranona give.

Basically, HMRC sees pensions payable as a result of UK employment as a kind of deferred consideration for having done the work. They are content to wait to get their share until you actually receive it in cash, but they will get you in the end.

Think of it this way. If it didn't work that way, there would be lots of people who plan to retire abroad doing deals with their employer in the last 5 or so years of their working career whereby they get no salary but a big fat pension contribution. During that period they would finance themselves on the never never. Then, shoot off overseas and take the pension tax free. HMRC wouldn't get a bean.

A huge loophole, easily closed by the way the rules actually work.

 

[Nostrodamus]

I think somone else summed it up when they said there is one rule for the rich and one for the poor.
There are people like Richard Branson who I believe does not pay any personal tax in this country yet has houses and boats here. I wonder if he would let me use his accountant?

 

[KellysEye]

Just to clear up a few points made here (some of which are incorrect) this is what I posted in the Liveaboard forum.

Post 1
We got not resident and not ordinarily resident for tax purposes. The problem is you can't get it quickly unless you have a fixed adress and are paying tax in another country. Clearly this is not on for cruisers. However, there is a four year rule. If you can prove you've been out of the country for four years with no fixed abode then you can apply for not-res, which we did. If you leave the UK in (say) March 2102 then you can make the not-res claim at the end of April 2016 and get a rebate for tax paid in the last four years. If you leave in (say) May you don't get back the tax paid in that tax year, although you will still get not-res. If possible use an accountant who has not-res experience. If you need a recommendation please PM me.

The key thing is not-res does not cover UK income, any income in the UK will still be taxed so move money/assets offshore. Don't use any tax haven in Europe, the European witholding tax on interest earned is now 35%. Move everything offshore before leaving the UK. Also there are moves afoot to not give non-res if you belong to a UK club and other trivial things so cut all ties.

Post two
We took professional advice from an accountant who does our tax returns and is a specialist in not res, which is why we appointed him.

I didn't mention this in the second post but we paid about 75 UKP for the advice. The reason it's so low is that to an expert it's a very simple question taking little time and the high cost of a letter confirming what he told me.

 

[Norman_E]

The only way of avoiding paying tax in the UK is to become a tax payer somewhere else. in your case, with low income, it should be possible to be resident for tax purposes in a place that has a more favourable view of your pension income.

You MUST take professional advice to do this.

To stop paying tax on your pension you need to become "non resident" and "not ordinarily resident". Both terms are defined in tax law, but essentially if you become resident overseas, and have severed all connection with the UK in terms of owning a house or having any property available to you, and remain out of the UK apart from visits less than so many days per year, you can qualify, and then get your pension paid gross. You do need proper advice. To avoid just swapping UK tax for tax elsewhere you need to choose a country of residence with a laxer tax regime. The UK is a country that taxes all your income wherever earned (global taxation) so is the USA, but some countries only tax local income, and only require immigrants to bring in and declare for taxation a limited sum. Malta was (probably still is) such a country, and had a special low tax rate to attract settlers.

 

[haydude]

[...] I would want to return and use the NHS if I got ill.

I concluded that I should accept that tax will be deducted from my pension to contribute to the recourses that I may want to use in the future.

Good luck with the NHS mate!

 

[Angele]

To stop paying tax on your pension you need to become "non resident" and "not ordinarily resident". Both terms are defined in tax law, but essentially if you become resident overseas, and have severed all connection with the UK in terms of owning a house or having any property available to you, and remain out of the UK apart from visits less than so many days per year, you can qualify, and then get your pension paid gross.

Becoming non resident in the UK and not ordinarily resident in the UK won't enable you to get a UK pension paid gross and not be liable for UK income tax. Overseas pensions - no liability to UK income tax. Income from investments overseas - likewise. UK pensions - still liable for UK income tax, whatever your residence/domicile status.

See my earlier post quoting directly for an HMRC guidance manual.

 

[chinita]

The OP's problem is that income from pensions in payment in the UK is taxable here.

That is my point. The OP has a public sector pension which is taxed at source. It makes no difference to HMRC where he is in the world; the income is derived in the UK and tax is deducted in the UK until such time that he declares himself Resident in another country and is prepared to take on the local Tax Authorities - perhaps in a foreign language.

 

[KellysEye]

>To stop paying tax on your pension you need to become "non resident" and "not ordinarily resident"....you need to choose a country of residence with a laxer tax regime.

We applied for not resident and when HMRC came back I got not res and not ordidarily res and Jane just got not res. It made no difference to the tax rebates or to tax on further income.

If you keep moving there's no need to pay tax anywhere. The problem is Europe where you have to become resident after six months. Elsewhere, in many countries such as Trinidad and Venezuela there are visa rules but no domicile requirements. Make sure to check though when you narrive somewhere.

 

[mountain]

Friend of mine took up residency in Cyprus and now has his pension taxed there, if my memory serves me right this is 5%. But the snag is you have to be resident there.

That is correct. You need Cyprus tax residency and, if I recall correctly, you need to put in 183 days first. You also need non-dom UK status and will be subject to the 90 day rule and must have severed all links.

Then 0% UK tax on your state pension and 5% Cyprus tax. Also no CGT, no IHT and only 10% tax on dividends and interest.

Occupational pension. Transfer it into a QROP and domicile it in Jersey. Then only 5% again.

Cyprus; Great sailing with the eastern med on your doorstep. Recently we sailed over to Beirut and cruised the Lebanese coast. Stunning.
New luxury marina almost complete in Limassol and others all along the south and west coast, all of a very good standard.

BUT
take advice from an expat taxation specialist. I use Baker MacKenzie.

 

[Tranona]

Lets face it this is complicated stuff and a lot has to be taken into account.
Now I hate to say it but I am going to. I should imagine there are those with far more assets than I have and may have their own accountants. They either do not frequent these pages or the accountants are so creative then it is something they do not want to pass on.
I do think the RYA or Crusing Association could orshould have looked into it to advise members or it would make a good story in one of the boating publications. I am supprised that there are many out there like myself in this position but I have not heard from one who has taken proffesional advice.
they are probably like me and don't want to pay out lots of money to be told you cannot do anything.
I know the merchant navy and long haul workers get a reduction in tax for being out of the country for so many days but why can't we get a reduction for not being there at all?

Why should the RYA waste members' money on giving tax advice to individuals?

We live in a collective society and if everybody tried to pick and choose what bits of tax they pay and how it relates to their perception of what they get for it there would be anarchy.

You are taxed on your pension because you received tax relief on your contributions. Taxes go towards providing a wide range of services, many of which we may not as individuals we may never use, others we use extensively. If you want to be able to pick and choose, then do as has been advised and cut all ties with the UK and then see how you get on. Where are you going to register your boat? How are you going to pay for healthcare for 4 people for the rest of your lives? What are you going to do when your money runs out?

The subject has been well covered over the years in the magazines and in seminars run for potential ocean voyagers. In fact it is a bit of a non-story. The rules are pretty clear, freely availabvle along with advice from the tax authorities as several posters have said. Once you have written about what the rules are the only thing you can say is that you have to take each individual circumstances into account - not much of a story, is it?

In reality, however, if you have sufficiently complex and sizeable financial resources to justify taking steps to become non-resident then you need serious professional advice as there are pros and cons and you need to be clear on the implications. However, as you seem to be just an ordinary person who whinges about paying tax on your pension, would suggest that the long term downside is far worse. If you have modest assets as savings there are many ways open to you to avoid paying tax, so unless you have vast sums of savings or huge non UK income it is not worth the hassle. And forget all the envy about the "rich" who don't pay tax (according to the stories) - their situation is not remotely like yours so no point in worrying about it - the tax authorities are the ones that do the worrying.

 

[MrCramp]

Good luck with the NHS mate!

The NHS have provided me and my family (parents, brother sister and relations) and in fact everybody I know with a first class service most of the time. When they haven't we have made sure that was corrected.

You can stand your corner and fight any problems that land on your doorstep.............until your health fails you......then you need the NHS, and in most cases it delivers.