Income Tax

Countries in which you may be residing:

Gibraltar

  1. Pension income which accrues in, derives from, or is received in Gibraltar, is taxable income in Gibraltar (taxed under s6(1)(d) Income Tax act 1952).
  2. For pension income, income tax is charged for each year of assessment, running from 1 July in one calendar year to 30 June in the next, on the basis of the income for that year.
  3. Apart from cases which fall within Rule 3A Income Tax (Allowances, Deductions and Exemptions) Rules 1992 (see next section), pension income is taxable in Gibraltar at the member's marginal rate of tax (see rates at point 4 below). This applies to residents and non-residents alike. In such cases, withholding tax is required to be
    operated by the Trustees (under the Income Tax (PAYE) Regulations 1989).
  4. Gibraltar tax is levied in accordance with the Rates of Tax Rules 1980. These provide that tax is charged in accordance with a series of rate bands.
    The applicable banding is determined by which income tax system the individual is subjected to or elects. There are currently three income tax band systems. They differ in the availability of personal allowances/reliefs and levels of tax bands.

    Taxable Income Bands - Rates from 1 July 2008 to 30 June 2009

    Allowances Based System
    £0 - £4,00017%
    £4,001 - £16,00030%
    Over £16,00140%
    Gross Income Based System
    £0 - £25,00020%
    £25,001 - £100,00030%
    Over £100,00138%
    Non-Residents
    £0 - £16,00030%
    Over £16,00140%

    Provision for specific pension income in Gibraltar

  5. Rule 3A Income Tax (Allowances, Deductions and Exemptions) Rules 1992 provides that where the pension income derives from a statutory pension scheme, or provident, or other scheme approved by Gibraltar's Commissioner of Income Tax, and the member is aged 60 or over, or compulsorily retired from police or fire service at age 55, such income forms part of the assessable income of the member but is currently taxed at 0%.
  6. This 0% tax rate was set in 2006, in an effort to encourage individuals to save for their retirement. This rate, together with all other Gibraltar tax rates, is subject to change and could change in the future.
  7. Taxable pension income falling within Rule 3A is treated as the first income received by an individual and any other taxable income received is treated as being received subsequently. As a result, in such cases, pension income is aggregated with other taxable income sources, thereby increasing the tax payer's marginal tax rate on the other taxable income.
  8. Rule 3B of the aforementioned rules, provides for the tax treatment of such pension income in the first year of assessment, thus clarifying the taxable nature of such income and explaining how taxable income is allocated to the appropriate bandings etc.
  9. For the avoidance of doubt, any pension income falling outside Rule 3A is subjected to tax at the rates shown in point 4 above. This would, for example include those members receiving income from an approved pension scheme before the age of 60.
  10. It is also worth noting that some members may be resident in Gibraltar under a special residency regime. These residents are called "Category II" persons. In such cases, the pension income (whether falling within Rule 3A or not) would fall within their assessable income, with tax payable in accordance with the Allowances Based System rates (as shown in point 4 above). Such residents benefit from a cap on their taxable income resulting in annual tax payable of between £18,000 and £21,880 (2008/09 rates). So, for example, even if their only taxable income was pension income falling within Rule 3A, they would have a minimum Gibraltar tax liability of £18,000 pa.

Tax Relief on Contributions in Gibraltar

  1. For those taxed under the Allowances Based System, tax relief on contributions made to tax approved pension schemes is available (under Rule 21 Income Tax (Allowances, Deductions and Exemptions) Rules 1992).
  2. This deduction is limited to 1/7th of assessable income, and in the case of a policy securing a capital sum at death, to 7% of the capital (2008/09 rates).
  3. This relief is not available to those who are not resident in Gibraltar (Rule 21 (12).
  4. This relief is also not available to contributions to personal pension schemes and for this purpose a personal pension scheme is one whose sole purpose is the provision of annuities or lump sums (Rule 21(9) and 21(13).
  5. Therefore in cases where the member is non-resident, or the scheme is a personal pension scheme (as defined above), no tax relief is available to the member on contributions made to the scheme.
  6. Tax relief is available for contributions made by the employer to an approved pension fund (under Rule 5(1)(h) Income Tax (Allowances, Deductions and Exemptions) Rules 1992).

Spain

The Spanish tax legislation is complicated. The Equus Scheme ensures pension payments are treated as what is termed by the Spanish tax legislation as a “temporary annuity”. The result of this is that the effective tax rate is 12% x 18% which equals 2.16%. Compare this with rates which can potentially apply to other pension based products which can be 18% or rates in excess of 40%. A number of new residents to Spain may not have completed their final tax registration in Spain. The ability to structure a pension based arrangement which is typically administered outside Spain can mean full compliance with the Spanish tax system is both advantageous from a Spanish and expatriate UK point of view. A pension income of €100K would pay tax at less than €3K per annum. Compare this with taxation exposure in the UK which would be in excess of €30K (after personal allowances and other reliefs). Although there is a procedure for applying for payments to be received gross, a straightforward transfer into the Equus arrangement ensures the final net amount after taxation in both the UK and Spain, is maximised. Typically after costs, in excess of 90% net return should be receivable by the pension beneficiaries.

We can assist with independent advice on transferring pensions to a jurisdiction which Spain will recognise. We can also provide further advice and transfers from independent specialists. Typically they will produce a report analysing your own individual circumstances and various alternatives, together with their preferred advice on your own particular situation. They will also highlight and analyse net tax savings. You will then be able to plan the amount you can expect over the forthcoming years net of taxation and expenses of running the pension.

Portugal

You can apply for the transfer from an existing UK Pension Scheme if you are resident in Portugal. Prior to transfer you should appoint advisers qualified to give advice which covers both the UK and Portugal. In particular, you may need to consider whether you are eligible to benefit from a tax-free lump sum.

We have Portuguese based legal and tax advisers who can assist with pension related and other financially based matters. Regular payments can be arranged to be sent to your bank account, either in Portugal or elsewhere. Typically, payments from a foreign pension are eligible for a 65% tax exemption. It is important the actual legal firm and operation of the Pension is professionally reviewed to ensure you are taxed at the correct rate.

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