Tax On Foreign Pensions

Income from pensions paid by countries outside the UK, whether from a foreign state or a foreign company, is liable for tax in the UK. That is true even if the pension is paid abroad into an account in a foreign bank and used only abroad - on holiday, for example.

The value of a foreign pension changes with the rate of exchange. The pension should be taxed on its actual value in sterling when you receive it.


However, the Inland Revenue may offer to tax it on the basis of an average rate of exchange over the tax year. You can accept that method or, if you think it would be better for you, insist that the tax is levied on the actual value you receive in sterling each month.

By a special concession, only 90% of the value of a foreign pension is liable for tax.

So the sterling value is reduced by 10% before tax is calculated.

Foreign pensions are taxed under the same system as new investment income. Under this method, which is described more fully later , the money received in either the second or the third year is taxed twice. You can choose which year has this double tax.

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