Q&A

British pensions

I am a British citizen holding a British passport and I have been living in Ireland since 1962. I am in receipt of a pension from former teaching employment in Britain. I return the gross amount on my husband's tax return each year. It is, therefore, fully taxed here in Ireland. If it were taxed at source in the UK, it would be at a lower rate than applies here and if this were the only tax applicable, I would be better off by the difference in the tax rates.

I telephoned the Income Tax Information Centre about the matter and was told that as an Irish resident, I am required to return the gross amount of the UK pension and if British tax had been deducted, this would be allowed as a credit. This would negate any benefit from being taxed in the UK and seems to be at variance to a previous reply on British state or local authority pensions.

Mrs M.G., Dublin

Once again the chary business of taxation on British pensions raises its head. I must admit I never imagined it was an issue affecting so many readers when it first arose last August. The issue is not helped by the fact that there are very different treatments for pensions which sound very much alike. Given your query and a number of others, I have revisited the issue with the Office of the Revenue Commissioners. Its position is clear . . . the advice you have been given by the Income Tax Information Centre is correct but for the wrong reasons.

Pensions from Britain are divided into several different groups for the purposes of tax.

Private/occupational pensions: These are taxed in the country of residence regardless of where they are paid. Anyone resident in the Republic in receipt of such a pension is liable for tax here.

Department of Social Security pensions: Although these are a form of state pension they are treated in the same way as personal and occupational pensions for the purposes of taxation. That means that for those people resident in the Republic and in receipt of a British DSS pension, tax is liable in Ireland.

Other state and local authority pensions: This is where the waters get very murky indeed. The nature of the work in which the pension was accrued and the citizenship of the recipient both come into play.

Looking to the former first, it appears that there are state and local authority pensions and then there are state and local authority pensions. Basically, if the pension is in relation to work of a governmental nature, it is presumed to be taxable only in Britain, subject to citizenship issues I shall come to shortly. The confusion arises over what exactly is governmental work. I now gather from the Revenue Commissioners that, although work as a teacher would be regarded as public service and work on behalf of the government, it is not considered work of a governmental nature for the purposes of taxation on the pension.

Quite where this leaves everyone I am not sure; it appears that only people who have carried out specific government service, such as diplomats will come under the provisions for taxation in Britain only. The determinant apparently is that the pension should be "in respect of services rendered in discharge of governmental functions". Quite honestly, whether this would, for instance include local authority officers or not, I have no idea. It seems that each case will be judged on its own merit and, given the difference in tax liable, it behoves everyone to pursue their case through the appeal process where there is any doubt.

The Revenue tells me that, to remove any doubts over who is eligible to claim taxation in Britain only in relation to such pensions, a protocol is being added to the Anglo-Irish convention on double taxation. For those people who find they are able to claim under the governmental work provision on their tax, the issue of citizenship remains. Assuming always that the residence of the claiming pensioner is the Republic, the pension is taxed in Britain if they hold British citizenship or dual British and Irish citizenship. If, however, they are Irish citizens but not British citizens, the pension will fall liable to tax in the Republic.

My parents were born in Ireland and emigrated in the 1950s to England to work. They became citizens of Great Britain in the late 1980s. They subsequently retired to Ireland and duly declared their intention to become residents during 1997. They are in receipt of the usual Department of Social Services retirement pensions together with a National Health Service pension paid in respect of NHS employment. A previous reply on the subject of NHS pensions indicated that, in these circumstances, my parents would benefit by having their NHS pensions fully chargeable to tax in Britain as they would fall under the provision of state and local authority pensions for work of a governmental nature. However, the situation appears far from clear. The Institute of Taxation book on double taxation agreements casts doubt on whether the Department of health pension arises in relation to duties of a governmental nature. I would be grateful if you could turn your mind once more to this problem.

Mr G.F., Nenagh

The volume of mail arriving in on this subject bears witness to your assertion that it is indeed a grey area. As you say, the cheer that appears in the broad brushstrokes of policy can soon turn to gloom when the minutiae of eligibility imposes itself.

I am sorry to say that, as in the case above, it appears that your parents' NHS pension does not qualify them for taxation in Britain, notwithstanding the fact that it can certainly be construed as work of a governmental nature. What struck me as interesting is that when I outlined the facts of your case, without names, to the Revenue Commissioners, that office was able to state quite categorically: "The pension is not regarded as pension paid to an individual in respect of services rendered in discharge of governmental function. The pension is liable to income tax in Ireland."

This was regardless of the fact that your letter does not detail the precise nature of your parents' work with the NHS in Britain. I have yet to ascertain what precisely does qualify as work of a governmental nature; as soon as I do I shall return one last time to this issue. Small consolation shall that be to you, or indeed your parents.

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