As an expat it can be confusing as to what options you have available in regards to your pension and the tax implications. My aim is to go over a few items that you might need to consider as an expat for your pensions.
Note, that pension rules are constantly changing. So, it is important to keep up to date with any information as all amounts constitute 2022/23 figures.
Taking your PCLS
You can take up to 25% of your pension tax-free. An option here (normally) is to take it at a lower margin rate and take it over a number of years rather than all at once. However, this might not be an issue for you if you live in a nil to low-income tax country when withdrawing. This might be a hack to take your pension when you are residing in a lower income tax location (if feasible speak to an advisor).
The 25% tax-free can be taken any time after the age of 55.
If you plan on residing in the U.K you do have an income tax allowance in 2022/23 of 12,570 GBP. But, as for many this could be a few years off it is important to keep up to date with the ever-changing U.K income tax rules.
A guide can be found here:
income tax and personal allowance
A tip would be to seek advice before you withdraw to ensure that you are optimising the tax consideration for your specific circumstance and location.
Annual Allowance
This refers to the amount you can take annually with a tax benefit. 2022/23 is set at 40,000 GBP or 100% of your earnings if earn less than 40,000 GBP. For higher earners, this limits the amount of tax relief you can claim by reducing it to 4,000 GBP a year.
Also, if you have taken over the 25% PCLS tax-free lump sum you can only put away 4,000 GBP a year (money purchase annual allowance).
This is another important aspect to consider and seek advice if needed about when might be a feasible time to withdraw on pension(s). As having the saving rate cut from 40,000 GBP to 4,000 GBP could potentially have significant consequences on your retirement planning. Furthermore, any carry forward any unused allowances from the past 3 years.
Inheritance tax
Presently, IHT tax stands on 325,000 GBP lowest rate (see our full guide on IHT rates) this increases to 500,000 with a U.K prime residence and doubles with a U.K deemed domiciled spouse. This is due to the estate that included money, property, and shares assets outside your pensions.
One aspect with regards to pensions it does not form part of your estate for IHT tax purposes. This can be a vital part to consider in estate planning as once you withdraw from your pension it then forms part of your estate, you can gift up to 3,000 GBP a year tax-free or 250 GBP to an unlimited amount of friends/relatives.
Emergency Tax
This is mostly used for those planning to take the tax in the first year. Emergency tax is the tax code that HMRC will employ against your income and pension until the valid information HMRC to have formulate the correct code. For most, it is gnerally better to hold off withdrawing your pension for the first year due to this reason. Again, speak to an advisor about this specifically.
Lifetime Allowance (LTA)
This can be complex as you have a number of relief options on how the current LTA can be extended depending on when the pension was accumulated. We have done articles on the reliefs that you can use. I will link those below. I would greatly urge anyone coming up to or over the LTA to get specific advice.
The basic principle of the LTA is in 2022/23 you have £1,073,100 and if you go over this, in most circumstances, tax is charged on the excess amount when it is withdrawn.
Blogs relating to the LTA amount are below:
- Pensions and Lifetime Allowance
- UK Pension Lifetime Allowance – Top Tips
- Pension Lifetime Allowance Limits and Combining a U.K Pension
If you would like to speak to someone about your pensions, please feel free to email me your questions, you can email me at info@investmentsforexpats.com.
