I receive a pension from Norway that is taxed at source at 15%. This has been paid into a Norwegian bank account for the past six years and has now accrued to £80,000. HSBC has been notified of this asset, so I won’t be penalised for non-disclosure foreign assets before 30 September 2018.
My accountant is concerned that I will need to pay tax on the pension. Norway has a reciprocal agreement with the UK, which avoids double taxation. However, since tax paid in Norway is 15% and my tax band in the UK was 40% from 2012 to 2016 when I retired and when it went down to 20%, am I liable for additional tax in the UK?
You must pay tax on pensions if you’re resident or were resident in the UK in any of the five previous tax years. You also pay tax on any foreign pension payments, including unauthorised payments, such as early payments and some lump sums.
If your income is taxed in more than one country, such as in Norway at 15% and then in the UK at 20% or 40%, the double tax treaty between Norway and the UK allows you to claim tax relief. Since you are resident in the UK you will be subject to UK tax on your worldwide incomes and gains, and since the pensions arises in Norway, it is taxed at source there. This would mean that you pay UK tax on the pension and can offset the Norwegian tax paid against it.
If you are not based in Norway and are resident in the UK, you don’t pay UK tax on your foreign income or gains if you don’t bring them into the UK, for example, you don’t transfer them to a UK bank account and keep them in your Norwegian bank account. In any event, you must report foreign income or gains of £2,000 or more, or any money that you bring to the UK, in a self-assessment tax return.
In which case, you will need to claim the ‘remittance basis’ on your self-assessment tax return. Claiming the remittance basis means you only pay UK tax on the income or gains you bring to the UK, but you lose your tax-free allowances for income tax and capital gains tax. Alternatively, you can pay an annual charge if you’ve been resident in the UK for a certain amount of time.