If you’re a non resident expat receiving a UK pension, you may be eligible to receive your pension income tax-free in the UK by applying for an NT code. This ensures that your pension provider does not deduct UK income tax at source, allowing you to be taxed correctly in your country of residence under a Double Tax Agreement (DTA).
In this guide, we’ll walk you through the process of applying for an NT tax code, explain why it’s important, and highlight how Harrison Brook can assist you in making your pension withdrawals as tax-efficient as possible.
What Is an NT Code?
An NT tax code is issued by HMRC to instruct UK pension providers to pay your pension income gross, meaning no UK tax is deducted, preventing unnecessary tax deducted at source. This is particularly beneficial for expats who are tax residents in a country that has a DTA with the UK, allowing pensions to be taxed only in the country of residence.
Without an NT code, pension providers apply UK [PAYE] tax by default, which could mean unnecessary tax payments and the hassle of reclaiming the excess.
Who Qualifies for an NT Tax Code?
You may be eligible for an NT tax code if:
- You are a tax resident in a country that has a Double Tax Agreement with the UK, which is covered under double tax agreements.
- The agreement specifies that pensions should be taxed only in your country of residence.
- You have no UK tax liabilities beyond your pension income.
Understanding Double Taxation Relief
Double taxation relief is a mechanism that prevents individuals from being taxed twice on the same income in two different countries. This relief is particularly important for non-UK residents who receive UK pension income, as they may be subject to taxation in both the UK and their country of residence. The UK has double taxation agreements (DTAs) with many countries, which aim to avoid double taxation and fiscal evasion. These agreements allocate the right to tax income to one country or the other, or provide for a reduction in tax rates.
In the context of UK pensions, double taxation relief is crucial in ensuring that pension income is not taxed twice. The NT tax code is a key component of this relief, as it instructs UK pension providers to pay pension income gross, without deducting UK income tax. This allows non-UK residents to receive their pension income without being subject to UK taxation, and instead, pay tax on their pension income in their country of residence.
How to Apply for an NT Tax Code
Step 1: Check the DTA Between the UK and Your Country
Review the UK’s double taxation agreement with your country to confirm whether your pension income should be taxed in your country of residence instead of the UK.
Step 2: Complete the HMRC Double Taxation Relief Form
The correct form depends on your country of residence. Common forms include:
- Form DT-Individual (for many countries with DTAs with the UK who don’t have specific forms).
- Country Specific Forms (for countries including France, Spain, Switzerland, Australia and several others).
The form must be certified by your local tax authority to confirm that you are a tax resident there, and the completed form should be submitted to HMRC.
Step 3: Submit the Form to HMRC
Once your form has been completed and certified, send it to HMRC at:
Pay As You Earn and Self-AssessmentHM Revenue and Customs BX9 1AS United Kingdom
Processing times vary, but HMRC typically takes several weeks (even months) to assess and approve NT tax code applications.
Ensure that you are registered for self assessment with HM Revenue & Customs (HMRC) to facilitate the processing of your NT tax code application.
Step 4: Notify Your Pension Provider
Once HMRC grants your NT code, they will notify your pension provider, who can then apply it to your payments upon receiving the appropriate written authorisation.
Benefits of an NT Tax Code
An NT tax code offers several benefits to non-UK residents who receive UK pension income. The primary benefit is that it prevents double taxation, ensuring that pension income is not taxed twice in both the UK and the country of residence. This can result in significant tax savings, as pension income is only taxed once in the country of residence.
Another benefit of an NT tax code is that it simplifies the tax process for non-UK residents. By instructing UK pension providers to pay pension income gross, the NT tax code eliminates the need for non-UK residents to reclaim taxes through annual UK tax returns. This can save time and effort, as well as reduce the risk of errors or missed deadlines.
Furthermore, an NT tax code can provide peace of mind for non-UK residents who receive UK pension income. By ensuring that pension income is not taxed twice, the NT tax code can help to reduce financial uncertainty and provide a clearer understanding of tax liabilities.
How to Use Your NT Tax Code
Once you have obtained an NT tax code, it is essential to use it correctly to ensure that your UK pension income is paid gross, without UK income tax deductions. Here are the steps to follow:
- Inform your UK pension provider: Notify your UK pension provider of your NT tax code, and provide them with the necessary documentation to support your application.
- Update your tax coding: Ensure that your UK pension provider updates your tax coding to reflect your NT tax code. This will ensure that your pension income is paid gross, without UK income tax deductions.
- Monitor your pension payments: Regularly review your pension payments to ensure that they are being paid gross, without UK income tax deductions.
- Declare your income: Declare your UK pension income in your country of residence, and pay tax on it according to the tax laws of that country.
By following these steps, you can ensure that your NT tax code is used correctly, and that you receive your UK pension income without being subject to UK income tax deductions.
Why This Matters for UK Pension Holders
For expats with UK pensions, including SIPPs, an NT tax code ensures that withdrawals are not subject to UK emergency tax rates, allowing you to receive your gross pension without unnecessary deductions. Instead, pension income is correctly taxed in your country of residence.
How Harrison Brook Can Help
Applying for an NT tax code and ensuring correct pension taxation can be complex. Harrison Brook specialises in helping clients with:
- Understanding whether you qualify for an NT tax code.
- Completing the correct forms to send to HMRC.
- Ensuring your pension withdrawals are tax-efficient.
- Providing tailored financial advice for long-term retirement planning.
- Ensuring you are correctly registered on your pension scheme’s payroll to manage tax codes and prevent double taxation.
Frequently Asked Questions (FAQs)
Can I apply for an NT tax code if I have multiple UK pensions?
Yes, but you must ensure that each pension provider is informed of your NT tax code once it has been granted by HMRC to ensure that each income payment is processed correctly.
What happens if I don’t apply for an NT tax code?
If you don’t apply, your pension provider will deduct UK income tax at source, which may result in overpayments and potentially place you in a higher tax code, leading to more tax deductions that you’ll need to reclaim from HMRC.
Can I backdate my NT tax code application?
You may be able to claim a refund for past overpayments by submitting a tax reclaim to HMRC, but this depends on your residency status and whether you were eligible in previous years.
Will I still need to pay tax on my UK pension in my country of residence?
Yes, your pension will typically be taxed in your country of residence, as per the Double Tax Agreement (DTA). It’s important to check the local tax rules and seek professional advice to ensure compliance, especially regarding the UK personal allowance.
Start Your NT Tax Code Application Today
If you’re an expat receiving (or due to receive) a UK pension, securing an NT tax code could help you avoid unnecessary UK taxation. Harrison Brook can guide you through the process and ensure your pension income is handled correctly.
Contact us today to discuss how we can assist with your NT tax code application and pension planning.
For more information and to access the necessary forms, visit the UK Gov website.
