expat network

I Live In Canada. Where Do I Pay Tax On My UK Pension?

UK Pension
One of the members of the Expat Network community asked the following question about where her UK pension will be taxed having emigrated to Canada. Richard Watts-Joyce, Partner at Global Tax Network responded to her query.



“I have just submitted a request to collect my pension early from Merseyside Pension Fund of which I was member up until August 2007 having transferred a small Civil Service pension to Bedfordshire County Council and then finally the Local Government pension scheme.  The benefits then became deferred when I left the employment of the LGA.  I emigrated to Canada in January 2009 and the pension remained deferred.

Apart from my UK pension which will be approximately 5,000 GBP annually I will also receive a tax-free retirement grant.  If the pension is converted this lump sum payment will be approximately 28,000 GBP and my annual pension will be reduced by about 1,000 GBP.

I will be 62 this year in June and am still working here in Calgary, Alberta.  I am confused as to who I will pay tax to.  The UK HMRC or Canada Revenue Agency? I have read quite a few blogs on the subject but nothing seems clear to me.  Though on the Gov.UK site it says that civil service pensions will have their tax deducted by HMRC but then Canada law states that they recuperate the money.  I understand that there is a double treaty between both countries.

I would be grateful for any advice and clarification on the matter so that I can pay the correct amount of tax to the correct country without paying twice.  I expect I would have to declare the retirement grant in Canada as income BUT would I have to pay their federal tax even though it would not be liable for tax in the UK?”


Richard Watts-Joyce of Global Tax Network responded as follows:

There is a tax treaty between UK and Canada which ensures that you will not pay twice on pension income. The exact wording (in Article 17) is:

Periodic pension payments arising in a Contracting State and paid to a resident of the other Contracting State who is the beneficial owner thereof shall be taxable only in that other State.

What this means in practice, is that Canada has the right to tax the UK pension income (whilst you are a resident of Canada) and the UK should not tax this at all.

You will still receive the UK personal allowance even as a non-resident which allows tax free income of £12,500 (assuming you are a UK national), so it may be that there is no UK tax deducted from the pension payment anyway. If that is the case, then you don’t really need to do anything, as you will just pay tax in Canada. If UK tax is being deducted, then you can file an application with HMRC to claim a repayment and stop the withholding going forward, which we can assist with.