If you are an expat and a tax resident in Thailand with your pension in the UK, you may be liable to pay tax in the UK. However, with the right international pension advice, it might be possible to transfer your pension fund out of the UK into a Qualifying Recognised Overseas Pension Scheme (QROPS) allowing you to benefit from advantages. Our independent financial advice regarding transferring pensions offshore is specifically aimed at those who plan not to return to the UK as a resident.
From 6th April 2006, the rules for UK pension schemes including; retirement annuity contracts, small self-administered schemes, self-invested pension plans, personal pensions and occupational schemes; have been consolidated under ‘Registered Pension Schemes’. These come under either Defined Benefit or Defined Contribution Schemes.
More flexibility was offered to pension holders in April 2015 meaning that in most defined contribution cases, 25% of pension pots can be withdrawn tax free whilst the remainder (no matter drawdown, lump sum or annuity income) is taxed at the pension holder’s marginal rate of up to 45%.
If income is sourced in the UK, as is the case with a UK pension, then even non-UK residents are liable to pay UK income tax on those earnings in the same way as UK residents. Your UK pension, counted as UK source income, will therefore be taxed at your marginal rate. Tax is applied to the 75% that is not included in your tax free sum.
A Double Tax Agreement (DTA) between the country in which you are resident and the UK can mean that you are exempt from UK tax. If the DTA exists between the country in which your pension is held and the country in which you are resident, than you can choose, instead, not to pay tax where your pension is held in favour of being taxed where you are resident. International pensions transfer is a potentially complex business and we would always recommend bespoke independent financial advice to expats considering this option.
The DTA between the UK and Thailand does not permit the payment of UK pensions to a Thai resident without being subject to UK taxation at the marginal rate. This means that residents of Thailand will pay up to 45% tax on their pensions. They may also be required to pay tax in Thailand and will not receive tax credits as a result of their double taxation position.
Government Service Pensions are treated a little differently.
Legislation in April 2015 affects UK taxation on defined contribution scheme benefits. For instance, taxes on death benefits are now influenced by whether the pension scheme member passes away before or after reaching 75 years of age. Passing pensions onto beneficiaries after the death of the pension holder is now, in general, less costly. Tax rates are still up to 45% in some cases.
Non-UK residents with a QROPS can, in some circumstances, pass on benefits at a lower tax rate when they die. Independent financial advice with a qualified pension specialist should be sought for individual cases.
Gibraltar taxes of 2.5% apply to QROPS held in the jurisdiction as no DTA exists with Thailand. UK income tax does not apply if the person has been non-resident for at least five years or withdrawals are below £100,000.
Inheritance tax does not apply in Gibraltar and you are protected from UK inheritance tax.
Gibraltar QROPS holders are protected from UK death benefit charges if the member is not, and has not been for at least 5 years previously, a UK resident.
Independent financial advice should be sought in all pension transfers to Malta. Thailand and Malta have no DTA in place so pensions (QROPS) will be taxed in Malta at up to 35%. Income tax may also be levied in Thailand.
UK income tax does not apply if the person has been non-resident for at least five years or withdrawals are below £100,000.
Inheritance tax does not apply in Malta and you are protected from UK inheritance tax.
Malta QROPS holders are protected from UK death benefit charges if the member is not, and has not been for at least 5 years previously, a UK resident.
The Thai Revenue Code stipulates that pensions are treated as income, as far as tax is concerned. A resident in Thailand receiving a foreign pension would be liable to pay income tax in Thailand but no other Thai taxation applies including net wealth, net worth, gift or inheritance taxes.
Thai income tax applies to worldwide income but this is only strictly true for Thai nationals. If the income is remitted into Thailand during the same tax year as it arises, then foreign nationals with Thai residency will pay income tax. They will not pay income tax on pension income arising during a different year to the remittance.
If the individual resides in Thailand for a total of 180 days or more during the tax year (not necessarily consecutive), then they are considered tax residents.
Income must be paid by non-residents on income sourced in Thailand only. Income tax on income sourced in Thailand is taxed but foreign income from pensions is not, whether remitted or not for non-residents. The foreign pension, to be excluded, must not have arisen in any way from employment in Thailand.
Progressive income tax rates apply in Thailand for those whose pension is taxable as detailed above. The highest rate is 35%. Annual tax returns are compulsory. Taxes paid in Malta or Gibraltar would not be refundable by Thailand. The DTA does not cover pensions or ‘other income’ with the UK so taxes paid in the UK could be levied if the pension were left in the UK, in addition to Thai taxes. If the pension is remitted from the UK in the same year as it arises, 80% ‘double-tax’ could apply at the top rate.
Personal schemes (SIPPs) and those in respect of past employment are treated equally in Thailand.
Thailand has 56 DTAs in total.
Leave the Pension in the UK
The requirements of the DTA cannot be satisfied with respect to pensions, therefore UK tax applies. If resident in Thailand, tax is levied up to 35% as well. This applies if the foreign pension is remitted in the same year as it arises. No foreign tax credits are afforded by Thailand. The pension fund will be subject to UK death benefit charges.
Transfer to a Gibraltar QROPS
For those members who have been non-UK residents for five years or more, transferring a pension to a Gibraltar QROPS will mean not being exposed to UK taxes on income of up to 45%. The member will pay 2.5% tax in Gibraltar and up to 35% tax in Thailand if they are a resident (remitting the pension in the same year as it arises and as a non-Thai national). No tax credits are available to compensate Gibraltar tax of 2.5%) The QROPS protects from UK inheritance tax and (assuming 5 years as a non-resident in the UK) it will also protect from UK death benefit charges.
Transfer to a Malta QROPS
Again, assuming the member has been a non-UK resident for five years or more, this option will ensure the pension is not subject to income tax (up to 45%) in the UK. The member will incur tax of up to 35% in Malta and 35% maximum in Thailand if they are a resident without tax credits. If the individual is not a resident in Thailand, taxes of up to 35% apply in Malta. The QROPS protects from inheritance tax in the UK (also with a zero rate of inheritance tax in Malta) and assuming a minimum of 5 years as a non-resident in the UK, it will also protect from UK death benefit charges.
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.