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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
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Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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I am Indian citizen living in UK since Jan 2007 and have Indefinite

Resolved Question:

I am Indian citizen living in UK since Jan 2007 and have Indefinite Leave to Remain (ILR) visa. I had private pension here which I have transferred to HMRC approved (QROPS) pension scheme in India. I am getting monthly pension from this pension provider which is credited to my Non Resident Expatriate (NRE) account in India. I request you to clarify the following:

1. Do I need to pay tax in UK on the above pension received in India? Please note that being a citizen of India I do submit income tax returns in India on my Indian income.If it is non taxable in UK then do i still need to show it here in self assessment tax return as a foreign income.?

2. Suppose If it is taxable in UK then can I reinvest the monthly pension into another pension plan or any other similar scheme in UK and thereby avoid any tax on it?
3. In future if I become a UK citizen then do I need to declare this pension as foreign income and pay tax on it here?
4. Dose taxation depends on whether I bring the pension amount in UK or not?
Submitted: 1 year ago.
Category: Finance
Expert:  Rakhi Vasavada replied 1 year ago.
Dear Friend,

Hello and welcome. Thank you for using Just Answer. Let me try and throw light on your issues one by one.

1. To begin with, If you receive a pension from a foreign country while you're living in the UK it will be subject to UK tax rules. How much tax you'll pay on overseas income depends on whether you're 'resident', 'ordinarily resident' or 'domiciled' in the UK.

Since you have received your pension in India, and since you already submit your income tax returns in India, you would have paid tax on that. So NO tax stands payable in the UK.

If you have paid foreign tax on an item of income, this tax cannot be refunded by HMRC. But if you also have to pay UK tax on the item of income and you are UK resident, you can claim a credit (foreign tax credit relief) for all or part of the foreign tax and set this against the UK tax due. You can do this by completing the foreign pages section of your tax return. The following is the HELPSHEET

The following is the Double Taxation Agrements / Arrangements with India, just for your general reference.

http://www.hmrc.gov.uk/manuals/dtmanual/DT9550+.htm


2.As mentioned above in Point 1, this would be taxable in UK, but you will claim relief of equivalent amount, hence tax stands avoided.

3. No, even this this will not be double taxed. You will reclaim it / avoid it in other manner. Income is NEVER double taxed. You can refer this from the link given above pertaining to avoidance of double taxation.

4. NO. This will not depend upon or get affected if you bring your money to UK from India or not. It would be just an remittance and remittance are never taxed as they are not income.

I am sure this would help.

You may please leave a positive rating if this helps as that is the only way we receive credit for assisting you. Alternatively feel absolutely free to revert with more queries if you have.

Warm Regards
Customer: replied 1 year ago.

Thank you for your reply and I would like further clarification on your answers.


1) Can you please elaborate on resident,ordinarily resident or domicile in UK category. I mean whether I'm a resident or ordinary resident..??



2) Please note that as the pension gets credited to my Non Resident Expatriate (NRE) account in India and it is exempted from any tax in India. This income tax return will be for the other domestic income I have and I do show the pension income in my tax return but do not pay tax on it. In this instance is there any tax liability here in UK for the same.



Also do I need to provide(submit) any documentary evidence to HMRC that tax (or no tax) has been paid in India on my pension. If yes then what type of documents are accepted by HMRC.?



3) Sorry I did not put the question no. 2 right at first place. My question is supposing the pension received overseas is taxable in UK, can I then re-invest the taxable amount into some tax saving schemes(like pension etc) in UK and thereby avoid any tax.?



Regards

Expert:  Rakhi Vasavada replied 1 year ago.
Dear Nitin Kumar,

Hello and welcome. Thank you for your follow up question.

1. Let me be clear with the definitions. This will help you understand your resident status better.

There are many different factors which will determine whether you are resident
in the UK. The only occasion when the number of days that you are physically present in the UK will determine your residence status is when you are here for 183 days
or more during a tax year. If you are here for 183 days or more in a tax year,
you are resident in the UK.

When you are resident in the UK, whether or not you are ‘ordinarily resident’
in the UK is generally relevant only if you have foreign income during a
tax year.If you are resident but not ordinarily resident in the UK you may claim the
remittance basis for your foreign income. But you will always pay Income Tax
on your UK income.

Ordinary residence is different from ‘residence’. The word ‘ordinary’ indicates
that your residence in the UK is typical for you and not casual. It is important
not to confuse ordinary residence with domicile

2. YES, since your pension gets collected in your NRE Account and since it has no tax on it, it will be liable for tax in UK. You will pay tax on it on your self assessment return.

Since you are anyway declaring the pension, there is no need to show HMRC that the same is NOT taxable in India.

3.YES. You are correct. If your pension received overseas is taxable, then those after tax money can further invested in tax savings schemes.

I am sure this would help.

You may please leave a positive rating if this helps as that is the only way we receive credit for assisting you. Alternatively feel absolutely free to revert with more queries if you have.

Warm Regards
Customer: replied 1 year ago.

Thanks for your reply and need further clarification.


 


1) Suppose if I decide to pay tax on this pension in India. In this case if I pay 'X' tax in India and it would have been 'Y' if I paid the tax in UK then do I need to pay the difference in UK if 'Y' is more than 'X'..?


 


2) What documents do I need to submit to HMRC as a proof of tax payment in India?


 


Regards

Expert:  Rakhi Vasavada replied 1 year ago.
Dear Nitinkumar,

Hello and welcome again. Thank you for your follow up question.

1. To begin with, you will have to know precisely if your pension is taxable in India. You cannot have option to see if you pay tax in India or in UK. So, if it is taxable in India, you would pay entire tax on it and claim it in your UK return. If it is NOT taxable in India, you will have no option but to pay tax in UK.

In any case, there cannot be a situation wherein you will pay "X" tax in India and pay the difference in the UK. Taxes are paid at ONLY ONE PLACE.

2. You will not submit anything but fill in all the information in your self assessment form. You will mention your income tax details and details of tax paid there. You would usually do it online.

If later required, you can always submit the copies of the tax paid / returns of India to substantiate you claim.

I am sure this would help.

You may please leave a positive rating if this helps as that is the only way we receive credit for assisting you. Alternatively feel absolutely free to revert with more queries if you have.

Warm Regards
Customer: replied 1 year ago.

I am sorry but I could not understand your reply fully. I would like to put it this way:


 


The pension I receive in India is Rs.250000/year which is equivalent to approx. £3000/-. If it is taxable in India and supposing I do not have any other income in India then I will pay a tax of 10% of Rs.50000/- which is Rs.5000 (approx. £55/-). Please note that Rs.200000/- is the personal allowance limit which is non taxable. In this instance do I need to pay any tax in UK?


Suppose I have other domestic income of Rs.200000/year then my total income would be Rs450000/year including the pension. Therefore the tax payable to Indian government would be 10% of Rs250000/- which is Rs 25000 (approx £275/-). In this instance do I need to pay any tax in UK on the pension received in India?


In both of the above scenarios please consider my annual income in UK (excluding the overseas pension) as £45000/-.

Regards


Expert:  Rakhi Vasavada replied 1 year ago.
Dear Mr. Nitinkumar,

Hello and welcome again. Thank you for your follow up question.

I did understand your question correctly, perhaps I could not convey myself as clearly as I should have.Sorry for this.

Let me come straight to the point.

1. I am aware that RS. 200,000 is a personal allowance limit, which is also known as exemption in India. In the scenario described, you will still not have any tax payable in the UK on the balance 200,000 Rs.

2. Here too, if you have domestic income or Rs. 200,000 and total income of Rs. 450,000 you will have no tax payable in the UK on the Rs. 200,000 pension received in India.

Let me make it simple, the botXXXXX XXXXXne is when you pay tax in India, whatever little, due to the exemption enjoyed in India, no tax payable in balances arisies in the UK. Any income is taxed only at one place and partial taxation at both places is NEVER possible. If you are enjoying exemption limits in India, it is fine. That does not make your balance income takable in the UK.

I hope I am clear now.

I am sure this would help.

You may please leave a positive rating if this helps as that is the only way we receive credit for assisting you. Alternatively feel absolutely free to revert with more queries if you have.

Warm Regards
Customer: replied 1 year ago.


Thank you very much for your reply. Now your reply is clear to me. Here are last two questions.


 


1) Suppose if my income in India is not taxed as it falls within the tax allowance as per Indian tax rules then do I need to show this income (In this case pension received in India) as a foreign income in self assessment tax return here in UK and then claim tax credit..? It will be 'NIL' tax return so as such no tax paid in India.


 


2) Suppose if my income in India is taxed then only I have to show it as a foreign income in self assessment and apply for tax credit..?


 


Regards

Expert:  Rakhi Vasavada replied 1 year ago.
Dear Nitinkumar,

Hello and welcome again. Thank you for your follow up questions.

1. Your income is NOT taxed in India because you get local exemption and it is counted within that. No, you will not report it unless if you have any tax credit to claim. If you pay even one Rupee as tax in India, you will show it and claim the tax credit, not otherwise.

2. Yes, that is right, as I just said above.

I am sure this would help.

You may please leave a positive rating if this helps as that is the only way we receive credit for assisting you. Alternatively feel absolutely free to revert with more queries if you have.

Warm Regards
Customer: replied 1 year ago.

Thanks for your detailed clarification. It is clear to me now that if I pay tax in India on my pension then I do not need to pay any tax in UK. But I need to show this in my foreign income and then claim tax relief on the same. Also if my Indian income including the pension is below the personal allowance limit (NIL return) then I do not show it in my UK personal tax return.


Could you please provide reference of the HMRC document to substantiate this..?


 


Regards

Expert:  Rakhi Vasavada replied 1 year ago.
Dear Friend,

You need to know that pension income or other TYPE income is not important,but it is INCOME in general that is what is taxed, in India or otherwise. Once taxed there, it not taxed in UK as the countries have agreements to avoid double taxation. UK has such agreements with 60 other counties.

The following is the Double Taxation Agrements / Arrangements with India, just for your general reference.

http://www.hmrc.gov.uk/manuals/dtmanual/DT9550+.htm


I am sure this would help.

You may please leave a positive rating if this helps as that is the only way we receive credit for assisting you. Alternatively feel absolutely free to revert with more queries if you have.

Warm Regards
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 3933
Experience: Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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