Income tax on UK pensions

Ritaruth Image
03/07/2012 - 07:58

HiCan anyone help please?My husband and I moved here to Italy in November last year. We are both retired. We own our property here but do not own a property in the UK. Our pensions (which are our only income) are paid into the bank in the UK and we pay tax in the UK. We transfer money to our bank here in Italy as and when we need it (every couple of months). Are we liable for Italian income tax too?


Hi Ritaruth, We seem to be in very similar situation to yourselves. My understanding : If you are resident here, you should pay taxes here, you get a sort of allowance against the UK taxes that is paid at source (so that you don't pay twice). BUT................. 1. If it is a 'government' pension only, then you pay taxes only in the UK (at source), 2. If it is a 'private' pension, you should pay your taxes here (claiming the allowance mentioned earlier). Bear in mind, I think you pay taxes on the total income, you don't get any 'tax free allowance' here, end result being that you would end up paying more taxes (here). I think my understanding is correct, but there are many more knowledgeable  folks here than myself ! Enjoy life here ! S

As an italian resident you must fill in  a tax return.  There are fines for failure to do so as we have just discovered!  Your pensions may be less than the tax free allowance, 7500 euro at present. Any tax due is only the difference between what you pay in the UK and what is owed in Italy.  I hope this helps and saves you money in the future. Steve

Unfortunately it is not as simple as whether you have paid UK tax or not. It is a question of whether you are liable to pay UK tax. To consider whether the UK source pension is taxable in Italy in any particular year it is first necessary to determine whether the individual is tax resident in Italy or whether they are, in fact, tax resident in the UK for that year. The year for UK tax is the year to 5 April of the year for Italian tax is the calendar year to 31 December. It should be noted that “tax residence” is not the same as “residence” and it is possible for a person to be living in Italy for sufficient time to require them to be registered as resident with the local commune but nevertheless, for tax purposes, for them still to be UK tax resident and not Italian tax resident. Conversely, just because someone has not registered as resident in Italy does not mean that they are not tax resident in Italy. The question of residence for tax purposes in the UK is complex and is currently in a state of flux following various decisions in the UK courts. It is anticipated that a new statutory definition of residence in the UK for tax purposes will be introduced in the near future. The UK-Italy Double Tax Agreement (“DTA”) has a tie breaker if someone is tax resident in both countries under their domestic rules. Whilst it is dependent on the facts of each case, and each case must be considered individually, for many people who have retired to Italy and spend most of their time there they are likely to be Italian resident for tax purposes and therefore not UK tax resident. However, where someone has a home (which has a wider meaning than simply owning a house) in both countries and spends time in both countries then it can get very complex. For the UK domiciled individual (usually someone born in the UK and/or having British parents), having a home available to live in in the UK can mean that under the DTA they remain UK tax resident and only pay Italian tax on their Italian source income. In most circumstances that Italian source income would then need to be returned on their UK tax return but would have the benefit of double tax relief and UK income tax would only be payable on that income if the UK tax liability exceeded the Italian tax paid on it. If there is any doubt about your tax residence status then it is essential to get proper advice as the consequences of getting it wrong can be very expensive. So far as pensions are concerned, the general rule under the DTA is that pensions are taxable in the country of tax residence and not the country of source with the exception of Government and Local Authority type pensions (ie pensions paid by the State to someone who has been employed in government service or by a local authority or similar), which are taxable in the country of payment unless paid to someone who is both a national of and tax resident in the other country.  To further complicate it, pensions in respect of services rendered in connection with any trade or business carried on by the State or a political or an administrative subdivision or a local authority thereof is taxable in the country of tax residence. It should be noted that the state retirement pension which everyone usually receives is not treated as a Government pension for DTA purposes and is taxable in the country of tax residence. Non-government service pensions (including the UK state retirement pension) received by a tax resident of Italy would, therefore, normally be taxable in Italy and not the UK. If in any doubt advice should be obtained in both the UK and Italy from a tax advisor/commercialista or from someone specialising in the interaction of taxes between the 2 countries. It should also be noted that in the UK, if you have paid overseas tax on income then relief is given for that tax. But this only applies if the overseas tax is actually due. If the tax has been paid and no tax is actually due then no relief would be given as the individual would be expected to recover the overpaid foreign tax from that country’s tax authorities. I do not know if it is the same in Italy but I suspect it is. Apologies for the length of this post but the position is not as simple as some people think and hopefully the above will at least give people a starting point to considering their position. Whilst I can comment on the UK tax position, including the DTA, I do not have sufficient detailed knowledge of the Italian tax system to give other than very general comments on it. The above is only a brief and general outline of the position and does not constitute the provision of advice on any particular circumstances. Advice on a person's individual circumstances should, if required, be obtained from a suitably qualified person. I hope the above is of assistance J