Individuals leaving the UK for the EU should consider the pension implications
Brexit, in general, makes the cross-border provision of goods and services more challenging. Strangely, however, the UK tax treatment of cross-border pension contributions and distributions has never been particularly ‘EU friendly’.
UK domestic law confers few special advantages on pension plans located in EU countries - and the UK’s network of double tax treaties (DTTs) give UK tax relief on cross-border contributions only in a handful of cases, with no EU bias (e.g. the treaties with France and the Netherlands – and with non-EU USA and Canada – provide for such relief, but not those with Germany or Spain).
Paradoxically, Brexit could ease up pension restrictions, as UK legislation (reflecting old EU requirements) currently imposes many restrictions on EU cross-border pension plans (e.g. a requirement to comply with each relevant country’s social and labour law and to fully fund defined benefit plans). There may now be a move to loosen these restrictions.
However, individuals who leave the UK as a result of Brexit need to consider the tax treatment of continued contributions to their old UK pension schemes and of transfers out of such schemes to EU based pension plans. It is not yet clear just how many individuals will be so affected (or, indeed, how many UK pension schemes will accept continued contributions from non-UK residents). Points to consider include:
There will also be potential UK tax issues to consider even where individuals only contributed to non-UK pension plans whilst in the UK - as future distributions from these plans may, depending on the circumstances, trigger either income tax or special penal UK tax charges.
So, whilst Brexit may ultimately have a positive impact on cross-border pension provision, ’Brexit exodus’ individuals are going to have some very important pensions tax issues to consider.
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