Do you have a UK registered pension and are you a tax resident in Israel?

If so, and your pension remains in the UK, you should be aware of your possible UK tax obligations. Furthermore, benefits could be available should you transfer these pension funds out of the UK to other secure jurisdictions under HMRC’s favourable Qualifying Recognised Overseas Pension Scheme (QROPS) regime.

Tax Options

Leave the Pension in the UK

Leave the Pension in the UK

If the pension remains in the UK, exemption from UK tax on payments may apply if the income is taxable in Israel (at rates up to 45% due to the ceiling provided under section 9C ITO). If tax exempt in Israel (e.g. First Time Israeli Resident etc), UK tax (at up to 45%) would be due. As stated, the relevant Israeli taxpayers may choose to be taxed in Israel during the exemption period, to alleviate UK taxation. Furthermore, the fund remains exposed to the UK death benefit charges.

Gibraltar QROPS

Transfer to a Gibraltar QROPS

Transferring to a Gibraltar QROPS for non-UK residents (5 years +) can alleviate UK tax on payments (at up to 45%) with tax potentially payable in Israel for tax residents (at rates up to 48%), if Israeli tax exemption is not satisfied, and 2.5% tax payable in Gibraltar. A foreign tax credit is generally available for Gibraltar tax paid. If tax exempt in Israel (e.g. First Time Israeli Resident) only 2.5% Gibraltar tax is due. For non-Israeli residents foreign pension income remitted to Israel would not be taxable. Furthermore, the QROPS can protect from the UK death benefit charges if non-UK resident (5 years +) and there is no Gibraltar IHT.

Malta QROPS

Transfer to a Malta QROPS

Transferring to a Maltese QROPS for non-UK residents (5 years +) can alleviate UK tax on payments (at up to 45%). Where the Malta Israel DTA applies there should be tax payable only in Israel, potentially this could be at rates up to 48% for tax residents. However, if an Israeli tax exemption is satisfied (e.g. First Time Israeli Resident), this could result in no tax in Malta and no tax in Israel. There is a risk of the DTA Limitation of Benefit Article applying, if the main purpose or one of the main purposes of the transfer was to obtain exemption benefits under the DTA. If applicable, Maltese tax may be due up to 35%. For non-Israeli residents, foreign pension income remitted to Israel would not be taxable in Israel but Maltese tax up to 35% may be due on such income depending on country of residence. Furthermore, the QROPS can protect from the UK death benefit charges if non-UK resident (5 years +) and there is no Maltese IHT.

If you leave your pension in the UK

If you leave your pension in the UK

From 6 April 2006 a single set of rules came into effect. Under this system, the tax treatment for all types of approved schemes, including occupational schemes, small self-administered schemes, personal pensions, self-invested pension plans and retirement annuity contracts have been amalgamated into the rules for Registered Pension Schemes. These can be either Defined Benefit or Defined Contribution (DC) Schemes.

DTA between the UK and Argentina

DTA between the UK and Israel

There is a DTA between the UK and Israel. This DTA provides that UK pension or UK annuity income paid to a tax resident of Israel, who is taxable on such income in Israel, shall be exempt from UK tax on such income. It should be noted that under the new version of the DTA, which was initially signed between the countries on 2 April 2009 but not ratified, the condition according to which the income has to be subject to tax in Israel in order to be tax exempt in the UK has been cancelled, but this DTA has not been ratified and it is unlikely that it will be ratified in the near future due to political disagreements.

Therefore if you satisfy the First Time Israeli Resident 10 year exemption, or Veteran Returning Resident 10 Year Tax exemption, or the Returning Resident 5 year exemption, then under the current DTA the UK Government will refuse to allow the pension income to be paid gross during the years the income is exempt from tax in Israel and will deduct UK tax (at up to 45%). It should be noted that a resident satisfying these tax exemptions may choose to be subject to tax in Israel during the exemption period with respect to all or part of his/her foreign source income. In such a case, the individual will be subject to tax in Israel with respect to his/her foreign pension income for this DTA purpose. There are separate provisions for Government Service Pensions.

Gibraltar QROPS

Gibraltar QROPS

Gibraltar has no DTA with Israel, therefore the QROPS pension payments to you would be taxable in Gibraltar, currently at a rate of 2.5%, and potentially in Israel (see Israeli tax position).

No UK income tax if non-UK resident(for 5 tax years + or total withdrawals are below £100,000).

No Gibraltar Inheritance Tax.

Protection from UK IHT.

Protection from UK death benefit charges, if non-UK resident (and non-UK resident for last 5 years + before payment).

Malta QROPS

Malta QROPS

Malta has a DTA with Israel, this provides that Maltese pensions and other similar remuneration paid in consideration of past employment to a resident of Israel shall be taxable only in Israel. In general, pensions not paid in consideration of past employment would also only be taxable in Israel under the Other Income Article. This is important, as we understand that the Maltese Tax Authorities do not currently treat pensions
from QROPS as “paid in consideration of past employment”. Therefore the QROPS pension payments should be taxable in Israel but not in Malta.

Individuals resident in Israel and satisfying the First Time Israeli Resident, Veteran Returning Resident, or Returning Resident tax exemptions should be treated as residents for the purposes of this DTA and therefore be entitled to claim benefits under it, i.e. no Malta tax and no Israel tax during exemption period.

There is separate provision for Government Service Pensions.

No UK income tax if non-UK resident(for 5 tax years + or total withdrawals are below £100,000).

No Maltese Inheritance Tax.

Protection from UK IHT.

Protection from UK death benefit charges, if non-UK resident (and non-UK resident for last 5 years + before payment).

Pension benefits

Pension Death Benefits Payment – UK Tax

From 6 April 2015, the UK tax treatment of benefits from DC schemes on death depends, amongst other things, on the age of the member at the time of death (i.e. pre or post 75). From this date, generally, there should be a lower UK tax cost on passing pension value to heirs on death. However, that said, there is still a possible current tax rate of up to 45%.

For those that are non-UK resident and have a QROPS the UK tax cost on succession can be less. 

Make smarter, safer decisions for your pensions.

« View another country
Help me with my pension »
  • “Thank you AES International for helping me and my family with your low cost no-nonsense approach. It is refreshing!”

    AES International Reviews

    Kristian Petersson

  • “With this sort of banking service you also expect to be paying very high fees, but it’s just not the case. I would definitely recommend this to other expatriates, especially those with connections to the UK.”

    Jake van den Dries

    Jake van den Dries

  • “In the short time that I’ve been using AES I’ve made nearly ten thousand pounds and couldn’t be happier!”

    AES International Reviews

    Jackie Pym

International Pension Transfer
How you can benefit from our pension experts:
  • You get the expertise of leading world experts who are UK-authorised
  • Independent analysis to help your decisions
  • Fast service with the best prices
  • Global coverage
  • Integrated investment advice when required

Yes, help me make the most out of my pension »

This general information has been provided on the basis of our understanding of the current legislation in the UK, Gibraltar & Malta as of April 2015. Should any of the information provided be inaccurate, incomplete or misleading, we take no responsibility for any reliance placed on it. We recommend that individuals always seek specialist multi-jurisdictional (where relevant) tax advice so that their individual circumstances can be fully considered.