International SIPPs – Pay 0% UK Tax, Globally
Non UK residents, who are looking to consolidate their UK pensions, whilst resident outside of the UK, will often choose to transfer to a QROPS (Qualifying Recognised Overseas Pension Scheme) as it is believed that a QROPS will offer the best outcome in respect to future tax on income payments. Well, few people are aware that the tax situation with UK SIPPs (Self Invested Personal Pension) is practially identitical. Many International SIPP holders (an ‘International’ SIPP construction is identical to a standard UK SIPP) are paying 0% UK tax on their pension income. This is because the UK has Dual Taxation Agreements with many countries of the world and in those Dual Taxation Agreements it will often state that tax is to be paid, locally, where the recipeint is residing. Therefore, you’ll pay tax locally, but not in the UK.
If a DTA between where you reside and the UK, is in place, a form is completed which is delivered to HMRC and they then inform your pension provider to not deduct any tax when income is paid to you. You then pay tax locally, wherever you are in the world. It is called an application for ‘relief at source from UK Income Tax’.
This is the form that you would use if you were resident in Spain: