Additional income and benefits - 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 in Section of the site 9 , the money received in either the second or the third year is taxed twice. You can choose which year has this double tax.


More information

Additional income and benefits - Tax on a Widow's Pension


Most widows receive a widow's pension. Women widowed under sixty, and some widowed over that age, also get a lump sum of 1000 called widow's payment. The widow's pension is taxable, but the widow's payment is not. The income you obtain from the pension uses up a lot of your tax allowances. So the income you can have on top of the basic widow's pension before you pay tax is fairly limited, especially after the end of the tax year in which your husband died.
In the first tax year, the amount you can get on top of your pension before you pay tax depends on the month in which your husband died.
After his death, you receive the whole annual tax allowance, however close it is to . . . ... see: Additional income and benefits - Tax on a Widow's Pension