UK Private Pension (DC Scheme)

Hello,

In the next few years I plan to draw my private pension with Standard Life. I am Tax resident in France and understand Standard Life will only pay out the full amount i.e. no annuity and no drawdown options.

HMRC and MoneyHelper.org.uk (I think they used to be Pension Wise) both tell me that the pension provider will pay me 25% tax free and then tax the remainder (possibly at emergency rate) and that any amount over £50,270 would be taxed at 40%.

I am hoping to get an NT tax code but apparently this is ignored by the pension provider and I will have to complete another “Form France Individual DT” to claim back the tax paid from HMRC. So far, so painful.

I then have various option on declaring the money received on my French Tax form.

Marginal Rate. I can understand that one with a bit of math’s.

Quota Part. Looks complicated.

Fixed Rate. I understand this means 7.5% tax after an uncapped 10% allowance. This one sounds good (equates to 6.75%).

Hopefully if I hold an S1 (does that mean that anyone in the PAC ?) then I won’t have to pay French social charges on the lump sum. Tick boxes 8SH and 8SI on form 2042-C or online?

I want to make sure I do all the homework I can before talking to a financial advisor so looking for the real experiences of people who have done the same thing as I plan, does my expectation above tie in with your experience?

Thanks for reading.

I did not know pension providers would ignore even an NT tax code. But I suppose it is consistent in that on a first taxable withdrawal that is taxable from a pension pot, HMRC applies emergency tax. So emergency tax is taken the moment you withdraw any taxable amount from a pot, such as from the 26th percentile of a pot value. But not when you withdraw from any of the first 25 percentiles ie the first 25% which as far as the pot is concerned, is taxfree.

There are 2 important things about this.

(1)After emergency tax has been taken you need to fill out one of 3 variations of a particular HMRC form to request it back. People can submit the form immediately but I gather it can take months and months to get the overpayment back.

(2) Worse, from what I gather HMRC takes even more emergency tax than you would think because their sums for this treat what you took out as indicative of your earnings per month and tax it as though you earned the amount that indicates for the rest of the tax year… or something equally barmy and unfair.

The finance industry has asked the government for HMRC not to do this. But for some strange reason :slight_smile: this continues.

I wonder if the following might work.
Get your NT tax form done as early as you can. For the pension pot, also submit the France Individual tax form (if HMRC will take it)
A couple of posters on here, of whom I think @SuePJ was one? have warned HMRC will overtax now if this isn’t submitted for each new source of ‘income’.

Do what a financial adviser might suggest, this is done to.avoid the emergency tax over-taking. As follows:

Make a first withdrawal of £1 or £100 - whatever is the minimum allowed by pot rules. No you don’t have to take the full 25% taxfree just take the absolute minimum token withdrawal.

The first withdrawal from a pot automatically triggers HMRC to issue a tax code to the pot. I understand it’s currently issued in two weeks or so. Later withdrawals are then not subject to emergency tax. .Typically I gather later withdrawals are forced by HMRC to be taxed at basic tax rate by the provider, which is currently 20%. The person withdrawing then accounts for that on their annual tax return either claiming back an overpayment for it or paying extra tax owed if the rest of income plus the withdrawal would take them into a higher tax bracket.

I don’t know if doing the France NT form and then trying to do a France Individual form for the pot before any withdrawal will mean that after a token withdrawal to trigger a tax code issue for the pot, any later withdrawals (in your case, all the rest of it) would not be taxed or if you’d still be taxed at 20% and then be expected to apply to HMRC for the return of the overpayment. But you’d avoid the emergency tax overpayment from the 2nd withdrawal, provided the tax code had arrived.

If Std Life won’t agree to let you do a token first withdrawal (this strategy is not unusual) then personally I’d look at transferring it to a provider who will assist and accessing it from a new provider. As and when you take the pot make sure you have an S1 to keep it to the 6.75% net if you’re going that route.

Personally I can only see tougher tax rules coming in both countries so I’d do each step as soon as I could.

I’m absolutely not an expert but picked this up in the financial press and hoping others on here who do know more will chip in.

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PS Don’t forget the moment you take any taxable withdrawal from a DC pension pot in the UK, such as if you take any money more than the 25%, you trigger the MPAA… for life.

This restricts your taxfree contributions to a maximum of £4,000 pa into a pension from the tax year after you make the withdrawal that crossed into taxable withdrawal territory. (Currently £40 000 p.a. contribution is allowed from income free of tax into a pension… until you trigger the MPAA. I gather taking any sort of DB pension does this too (but apparently, not state pension).

As soon as you submit your NT form, of course, this is probably irrelevant. It’s possible to still be taxable in both though I’m sure most people choose one or the other most of the time.

If you’re planning on selling or renting out a UK property there is some excellent advice on how that works with taxation on other threads on here that would be well worth taking a look at too.

Hi Karen, thanks for this. Some new things for me to digest.

As you said hopefully there will be more comments.

I take everything I have found out so far with a pinch of salt and so I am really keen to hear from someone who has gone through the process.

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If I were you I would speak to an expert to make sure you do things the most tax efficient way. I was recently on a discuss coordinated by Overseas Home. This guy was talking about the impact of moving to France from UK and the implications tax wise. Have not used him but seemed good (in UK)

malcolm.mcdowell@chasebuchanan.com
T: 07551 291 096 / 01491 728 004

Thanks Annej

Joco went through the process - and was my initial guide in this. I haven;t done it yet, still stuffing the pension / house fund…

My research findings (inlcuding speaking to an HMRC technician) are -

you have to take the lump sum first, to get the pension providor’s tax ref to put on the Franc e DTT form

best (very best) to take the lump sum all in one go - otherwise technically the flat rate doesn’t apply. I suppose you could ask your impot if it’s OK, but seriously? What if they then say - oh sorry we were wrong…

If you do the lump sum just before end of UK tax year, you can put the actual figures in your UK tax return and generate the refund - then yell at them they have the DTT form you sent in first class - and upload it also…

But really it’s such a great tax break it would be curmugeonly to complain too much about it surely? Even if you had to wait 9 months for the 45% tax you’ll pay on the taxable sum (if it’s over about 30K approx…)

Here’s a link someone posted on the site -

If you took a withdrawal that was subject to UK emergency tax near the end of French calendar tax year and had to wait for a refund of the tax back, which for sure would not arrive till the following French tax year…

then I do remember seeing that you can “accrue” an “earned in this French tax year but for a reason not within my control not physically received by me in this tax year” amount (ie the emergency tax) into your French tax return and have it handled as, say, 2022 income/revenue even though the emergency tax part of it would not be physically received by you till 2023.

The tax reference for the pension pot you need to give France is undoubtedly the same reference as the pot would have anyway? Or if not, then it would be generated by HMRC together with the tax code triggered by the token first withdrawal you’d use to get the tax code for the pot within 2 weeks of withdrawing token £1 or so and avoid the emergency overtax problem. (20% default base rate tax taken then reconciled with HMRC is a lot better than 45% or so).

You could also use ‘small pots’ with a bit of orgamisation, to take £30,000 tax free. Emergency tax is not taken on this.

You’d handle the rest in the normal way.

A lot of this can take a long time to organise due to the glacial pace found in many areas of the UK pensions industry - so I’d get started quick if I were you especially with potential government changes not too far away

That’s an idea - ask the pension company for their HMRC code… would they give you it?

That’s a real nugget of info - as one would be attending the impot tax office to get the DTT form stamped one could ask them for that dispensation at the same time! - even though there’s no real need to because one is still receiving 25% of the pot when taken without HMRC tax (tax free allowance) and 55% of the rest maximum - and only having to pay 6.75% of that to France…

Would that be potential QROPS changes you had in mind or changes to the France / UK double tax agreement? Coz cashing in the pension in the UK would be covered by the DTT, transferring it elsewhere in euroland first would be QROPS? But why would anyone transfer the pension abroad before cashing it in?

ps no HMRC QROPS transfers allowed anyway to France?

One more thought - it might be that the France tax inspector might be very happy to see the actual lump sum encashment evidence to bring their stamp and signature to bear on the France form individuel ?!

Wouldn’t the first thing be to get your “transfer to being taxed as a French resident and not as a UK resident’” thing done first before doing the rest? so taking the form into the French tax office, getting them to approve it and stamp it and then ensure the UK has it before doing the rest?

Unless something’s changed that I missed, even though Brexit is done and it could at that time have been mandated by UK government, that transfers to EU countries get fleeced a hard 25% (lost forever) even where there is a residential or employment link to the receiving country as do transfers to quite a lot of other countries, this change hasn’t happened but the possibility should be watched.

I’d tend to keep it in the UK if I was in that situation as a first step for other reasons anyway - but everyone’s situation is different and I suspect especially if it’s over £30k you almost certainly need a good IFA as a tin-opener to get your funds released if you do it that way. (Blocking rules are being practised even when not required and that’s beginning to affect DC whereas previously the blocks were on DB).

This is why each step has to be carefully planned for each individual’s situation.

I am not sure if @cat still has a link to spectrum ifa? Brian and Claire could be worth contacting.

why did people transfer abroad larkswood12? well for one example, alhough there are now some newish complications, I gather Malta was one example of an interesting and relatively accessible jurisdiction. Being in the EU and yet opportunities that were more beneficial than where the funds came from.

@KarenLot @larkswood12 I wonder if this might help… (caveat - I’m not a French tax specialist so happy to stand corrected by others more qualified).

If you take a pension lump sum from the UK and are French resident, under the tax treaty the pension should only be taxable in France. Under general tax treaty first principles, I would assume that therefore means you report 100% of the (gross) pension in the year you become entitled to it, regardless of whether a part of it - ie the UK tax- actually is only received (probably much!) later, due to seeking a refund from HMRC. From France’s perspective, that full 100% amount is surely reportable in the tax year when the net (of UK tax) sum is intially received. It is of no interest to France that the paying country (ie UK) has, for its own internal admin reasons, initially withheld X% emergency tax from it. Tax has been withheld by the ‘wrong’ country, hence seeking a refund from the UK for the emergency tax withheld.

Very interested to see if others agree. (or not!)

@George1 I agree!

Yes correct George1. Even if you’ve previously given HMRC the form to say you’re now primarily taxed in France as a resident and even if you also make a separate declaration to HMRC to get the pension pot recognised as yours as a foreign resident, HMRC will still grab emergency tax on any first withdrawal and requires providers to deduct basic income tax on later withdrawals (currently 20%). I’m doubtful either could be avoided.

The “declare accrued revenue for this year not actually received yet” box on French tax declaration looked like the most technically correct and very transparent way of declaring this sort of retention - unless there’s a separate box just for this lump sum to be mentioned - in which case your reminder to put the gross amount is well worth taking note of

The form to fill out to claim an emergency tax refund part-way through the year if emergency tax is taken as above, is 1 of these 3 depending on circs: P55, P53Z or P50Z.

In theory HMRC would get around to refunding automatically but filling out the form making a specific request theoretically could get it back in 30 days.

As at last 3 months of 2021 HMRC had taken £34 million of emergency tax for this

Apologies for not keeping up with this thread that I started. We have guests so “entertaining” them.

Will rejoin when I have my life back.

Many thanks for all input.

Hello larkswood12 , thank you, I have looked at France DT Individual which I believe is this form France DT Individual.

Can I ask where you put

the pension providor’s tax ref to put on the Franc e DTT form

It’ not obvious to me. (fuddled brain).

Best Allen

Hello KarenLot, thank you.

Yes I have already done the

Wouldn’t the first thing be to get your “transfer to being taxed as a French resident and not as a UK resident’” thing done first before doing the rest? so taking the form into the French tax office, getting them to approve it and stamp it and then ensure the UK has it before doing the rest?

Sorry if I am repeating other info already included in this thread but my HMRC technician (who was genuinely helpful) said words to the effect that " the pension provider treats foreign tax residents the same as anyone else and takes tax from the lump sum payment. I then have to fill out form France DT Individual again, get it stamped by French Impots, send to HMRC who refund my tax once they have seen that I paid French tax on the amount paid .

I think said Technician then may have said I would have to do France DT Individual a third time but my eyes were starting to glaze over at that point so not sure.

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