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Tax deducted at source on a foreign pension

Tax deducted at source on a foreign pension

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I have a personal tax client who receives a pension from Holland and the tax deducted at source is approximately 33%. My client is a basic rate tax payer so my initial reaction was that he could take credit for this "overcharge" on his tax return. I have fed the figures into our software and the amount recoverable is not as high as I expected (i.e as if it had been a uk pension with 33% deducted). I am aware that Foreign Tax Credit Relief can complicate these matters but is it normal to not get full relief on the tax deducted from a foreign pension? [in terms of numbers (which are not big) the client gets a 3,000 gross pension with 1,000 deducted at source. My naive calculation concluded that he should only pay 600 so we can recover 400 through the TR. However our Taxcalc software is not bearing this out when entered as a foreign pension.]
I suspect my client will need to make contact with his Dutch pension provider but in the meanwhile any input, views, titbits on the calculations would be appreciated.

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By ACDWebb
08th Aug 2012 08:06

Article 17 of the UK/Netherlands treaty says

"17(1)  Pensions ... paid to a resident of a Contracting State shall be taxable only in that State.

17(2)  Notwithstanding the provisions of paragraph (1) of this Article, payments falling within that paragraph may also be taxed in the Contracting State from which they are derived, in accordance with the laws of that State, where:

(a)the right to claim the payments has been exempted from tax in that State, or contributions associated with the payments have been taken into account for the purposes of tax relief in that State; and

(b)the payments are not taxed in the Contracting State of which the recipient is a resident or in a third state, at the generally applicable rate for income derived from employment, or less than 90 per cent of the gross amount of the payments are taxed.

The preceding provisions of this paragraph shall apply only if the total gross payments which, pursuant to the preceding provisions, would be taxable in the Contracting State in which they arise, exceed an amount of 25,000 euros during the fiscal year concerned."

On the face of it the client should be contacting the pension provider & Dutch tax authorities to have the pension paid gross under the terms of the treaty and reclaim tax already deducted.

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By eastangliantaxadvisor
08th Aug 2012 08:54

I agree - your client needs to contact the authorities in the Netherlands.

You'll get relief on the lower of:

foreign tax payable under the terms of the agreementthe amount of UK tax due

I suspect this is why the answer is not as you expected!

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By brownbowl
08th Aug 2012 23:37

Acdwebb/mawallace thank you both for taking the time to respond. The client has been trying for months to make contact with the Dutch but has had no success to date. We will keep trying!

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