Making pension withdrawals from your UK pension scheme as a non-UK resident requires careful attention to HMRC rules if you want the payment in full, without automatic UK tax deductions. Many clients ask whether they can receive their pension in full while living outside the UK.
If you hold an International SIPP or QROPS, your provider must usually deduct tax by law. However, non-UK residents may apply for an NT tax code. This can reduce or eliminate UK tax on part or all of their pension income. Understanding how the NT tax code works and the steps to apply is essential for anyone in this situation.
Before diving deeper, our CEO and Independent Financial Adviser, Dominic James Murray, explains what an NT tax code is and how to apply one for non-UK residents in this short YouTube video:
🎥 Check out our YouTube channel for more expert guidance on UK Pension Transfers
What Exactly Is The NT Tax Code?
NT Tax Code implies that there is no tax due on this withdrawal. HMRC generally instructs your employer, or your pension trustee or provider, not to deduct tax from this income.
The P85 form applies only if you lived and worked in the UK, left the country with no plans to return, or intend to work abroad full-time for at least one full tax year. A tax year runs from April 6 through April 5 of the following year.
Why aren't you paying taxes on this income? HMRC issues an NT tax code when you report your income, often because your country has a UK tax agreement.
Double Tax Agreements (DTAs) allow you to receive your NT code if you live in a country that has a tax agreement with the UK. This means you won't have to pay tax in your home country and the UK on the same assets/income.
How Does The NT Tax Code Work?
The tax paperwork can be complex, but here is how it works: HMRC treats your pension income under the PAYE system. You might not pay tax immediately, receive PAYE coding notices, or get forms like a P85 from your pension provider. Later, you may need to claim a refund or pay extra tax, and HMRC could issue a tax calculation or Self Assessment return.
The PAYE system deducts tax at the point of purchase. If you are or have been employed, you may recognise this as the system your employer uses to deduct tax from your earnings. However, the PAYE system deducts tax when applied to pension income. No NI payments are due on pension income.
Your pension payment's taxation depends on whether you choose to accept part or all of your fund, have additional PAYE income, or get the state pension.
As previously stated, depending on how you decide to utilise your tax-free cash sum, just a portion of your pension payout may be taxable. These considerations apply only to the portion of your pension that will be subject to tax.
The pension provider employs a PAYE code number, calculated on an 'emergency' or month 1/week 1′ basis. It is not necessary to give a P85 for the tax year when you receive your pension, unless you choose to do so, in which case the pension provider should take the code number from the P85 and use it.
If you've stopped working, you should receive a P85 from your previous employer. You may also receive it from another pension provider if you previously withdrew a full pension. The P85 shows your income, tax paid since April 6, and the PAYE code your employer used.
There is a clear process to get an NT tax code. It lets you receive your full pension before UK tax. You must complete and submit the P85 form to HMRC and declare the income in your country of residence.
How to Apply NT Tax Code
To begin, you must go to your local government office. Simply request the paperwork demonstrating that you are a local tax resident once you arrive. However, keep in mind that it is your obligation to report this income in the nation in which you work.
The next step is to fill out the P85 form on the HMRC website. You can find instructions for this already. You can submit the form online or by mail. HMRC will then issue your NT (Nil Tax) code, allowing your pension to be paid in full without tax deductions.
How Long Does The Process of Filling Up NT Tax Forms Take?
Unsurprisingly, it will not happen overnight with HMRC. The typical completion time is six to eight weeks. However, there have been times when it has taken much longer.
We suggest our clients start this process around six months in advance of when they wish to withdraw. Allowing sufficient time for the NT code to be applied when making withdrawals from your UK pension plan.
Get Your Free Initial Consultation on NT Tax Code for Your UK Pension Transfer at Cameron James
UK pension transfer involves a lot of work in terms of due diligence, paperwork, and the time consumed which could last up to eight weeks. Taxation, on the other hand, is one of the aspects that you have to consider, particularly if you are living outside the UK.
Applying for NT tax code is one of the things you should consider doing to avoid getting double-taxed on your income tax. At Cameron James, we have helped non-UK residents in numerous countries to successfully obtain their NT tax code when making withdrawals from the UK pension asset. As such, we are very well-experienced in this area and the hands-on process that goes with it.
However, it is important to note that we are not independent tax advisers, and should you ever wish to seek clarification on any tax issues, we advise you to seek independent and professional tax advice in your country of residency.
We are an FCA-regulated and well-regarded pension transfer specialist in the industry. We believe you have questions about defined benefit pension, especially if you are looking to transfer your UK pension overseas.
Click the button below to have a free initial consultation with one of our qualified independent financial advisor and get the best financial advice on your UK pension transfer.