HMRC has issued a warning to taxpayers who receive foreign pensions, particularly US pensions, about the potential for a large tax bill if they fail to make necessary payment arrangements. The tax authority clarified that while PAYE can be used for domestic pensions, foreign pensions require separate tax reporting through self-assessment.
HMRC has issued a warning to taxpayers about the potential for a 'large tax bill' if they overlook a crucial check. The alert came after a taxpayer inquired about paying taxes on their US pension. The individual asked if they could still pay through PAYE since they met all the conditions. HMRC confirmed that the balancing payment for the 2023/2024 tax year would be collected through PAYE starting April 6, 2025.
The taxpayer, who was previously under the impression that foreign pensions must be managed through self-assessment, sought advice on signing up for PAYE, believing there might be a US/UK reciprocal arrangement. HMRC clarified that it cannot operate PAYE on foreign pensions and stressed the need to declare this income. HMRC explained that the reciprocal arrangement is a double taxation agreement that determines who has the right to tax the income and where foreign tax relief claims should be submitted. HMRC has advised individuals with pensions who wish to avoid a large tax bill at the end of the year to contact them to include the pension in their PAYE code. They also clarified that this action would not affect the obligation to report taxes through self-assessment
Taxes HMRC Foreign Pensions PAYE Self-Assessment
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