The HMRC Double Taxation Relief Manual sets out the overall principles to be applied in respect of pension income.

It states:

'Pensions, other than Government pensions, paid in consideration of past employment to a resident of a country with which the United Kingdom has a double taxation agreement, are normally taxable only in the country of which the pensioner is a resident, but there are exceptions to this.

For example, the agreement with Sweden gives limited taxing rights to the source country; the agreement with Zimbabwe gives sole taxing rights to the source country if the employment in respect of which the pension is paid was exercised in the source country; and some other agreements enable both countries to tax such pensions, or only give exemption in the source country if the pension is subject to tax in the country of which the recipient is a resident.

Claims by residents of agreement countries to exemption from United Kingdom tax on such pensions are made to HMRC. The relevant office will authorise non-deduction of United Kingdom tax if a claim is accepted.'

Double Taxation Agreements (DTAs) are drafted to stop scenarios where income and gains are taxed twice. Most DTAs contain articles that govern the taxation of pension income and this varies from country to country. In many cases the DTA awards taxation rights to one State at the exclusion of another State.

Planning note

Anyone considering retiring to a different jurisdiction should give careful consideration to how their pension would be taxed abroad as well as quantifying the cost of living etc. We can help with the calculations.