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Income Tax (Earnings and Pensions) Act 2003

Section 573: Foreign pensions

2300.This section identifies pensions paid by or on behalf of a person who is outside the United Kingdom as pension income. Taken together with section 569 this section ensures that all pensions paid by or to persons in the United Kingdom are taxed. It derives from sections 18(3) and 58(1) of ICTA, both of which create a charge under Schedule D Case V.

2301.Subsection (1) identifies the income that is within the section. It includes the restriction that the section applies only if the pension is paid to a person resident in the United Kingdom. As is the case for United Kingdom pensions there is no definition of “pension”. The word has its ordinary meaning.

2302.Subsection (2) limits the scope of the section. The section applies only to pensions not identified in one of the specific provisions of the pension income Part. This is a similar structure to section 569 which covers pensions paid by or on behalf of a person who is in the United Kingdom. There are two reasons why the general charge on foreign pensions is subordinate to the specific charging provisions of the pension income Part.

2303.First, as for United Kingdom pensions, each section should identify a discrete source of pension income. To achieve this it is necessary to remove the overlap of the charging provisions in ICTA.

2304.Second, there are two sorts of pension paid by or on behalf of a person who is outside the United Kingdom that ICTA taxes under Schedule E rather than Schedule D Case V. The pension income Part has to deal specifically with those pensions in order to maintain the effect of ICTA. The two sorts affected are those taxed by section 580 (approved retirement benefits schemes) and section 615 (certain overseas government pensions).

2305.It is possible for an approved retirement benefits scheme to be operated by or on behalf of a person outside the United Kingdom. A pension or annuity paid by such a scheme is taxed by section 580. The payer is obliged to operate PAYE. The 10% deduction in section 65(2) of ICTA is not available for these pensions.

2306.Section 615 applies to a pension paid in the United Kingdom by or on behalf of certain overseas governments for service to those governments. In practice these pensions are paid by the Crown Agents. The Crown Agents operate PAYE when paying the pensions.

2307.Subsection (3) is a signpost to Chapter 3, which gives the general rules for United Kingdom pensions. It is not possible for a pension to be a foreign pension as defined in section 573(1) and a United Kingdom pension as defined in section 569(1). This is because the qualifying conditions are mutually exclusive.

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