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Confused UK retirees …

The Belgian tax authorities are emphasising that it has nothing to do with Brexit, but this year, they have suddenly decided to tax Belgian state pensions paid to British retirees living in the UK.

The problem is the double tax treaty between Belgium and the United Kingdom and the transitional rule for older retirees.

What is it all about?

If you live in one country and receive income from another, like a pension, you risk being taxed in both countries, by your own tax administration at home and by the tax administration of the country that pays out the pension.  At home they want to tax your worldwide income (that is any income irrespective of where it comes from) and over there they want to tax the income that is paid out.

This means that pensions can be taxed twice, a double tax treaty is important. A Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital determines which country can tax the income and what the other must do to avoid double taxation (refrain from taxing it, or give a tax credit).

For pensions, most double tax treaties say that the tax is due only in the country where you live; the country that pays the pension must not tax it.

That used to be the general rule in the 1987 treaty between Belgium and the United Kingdom.

Belgium is one of the increasing number of countries that want to tax pensions when they have allowed tax relief on contributions from which the pensions are paid. There is a logic in that. The Belgian taxman lost money when the retiree was working here and built up pension rights with money after tax. And when the pension is paid out, it is taxed in the United Kingdom. That works both ways for pensions built up in the UK.

When the two governments signed a protocol in 2009 to change certain rules in the 1987 double tax treaty, they agreed to invert the rule. This is the rule in article 18 (a).

Subject to the provisions of Article 19,
(a) pensions and other similar remuneration arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in the first-mentioned State;

Nevertheless, this rule has an exception in Article 18 (b) :

(b) however, where pensions and other similar remuneration under a pension scheme were first credited or paid before 1 January in the calendar year next following that in which the first Protocol to this Convention entered into force, all payments under that scheme shall be taxable only in the other State.

The rule is taxation in the country where the pension is paid, the exception is that pensions paid before 1 January 2013 continue to be taxed in the state of the retirees’ residence. British pensioners pay British income tax on Belgian pensions, Belgian retirees pay Belgian income tax on UK pensions.

What is the reason for this exception?

That is obvious. The negotiators did not want to inconvenience older retirees for whom this new rule would be an upheaval.

They were used to the old rules :

  • UK resident retirees declared their Belgian pensions in the UK only;
  • Belgian resident retirees declared their UK pensions in Belgium only.

Under the new rules, retirees would have to take account of the tax rules in both countries ;

  • for UK resident retirees, the Belgian Federal Pensions Office withholds tax at source on the state pension, but they have to file an income tax return in Belgian as a non-resident, and they may have to pay some more tax.
    At home, they would have not have to report the pension. HMRC confirms that if there is a Double Tax Agreement (‘DTA’) and “If the DTA gives exclusive taxing rights to another country, no UK tax is payable and so no relief will be available.”

    However, taxpayers “are encouraged to provide further details in the ‘any other information’ section of the SA100 (page TR 7).” I would suggest to write in box 19 (Please give any other information in this space) : “I receive a pension from the Belgian State, this is exempt in the UK in accordance with article 18 of the Double Tax Agreement between Belgium and the UK.”
  • for Belgian resident retirees, DWP (the Department for Work and Pensions) does not deduct tax under PAYE when making payments of the state pension. If HMRC believe that there is tax payable then they should issue you with a Self Assessment tax return or, for the 2016/17 tax year onwards, they should issue a Simple Assessment of your tax bill.

    At home, they would have to report their British state pension but they have to claim exemption in their tax return. Belgian gives treaty relief by way of “exemption with progression”. This means that Belgium exempts the overseas income but that the Belgian tax authorities will take account of this exempted income to determine the tax rate that applies to any income that is taxable in Belgium. In effect, this pushes the Belgian income in the higher tax brackets.

    What is more, they would pay some communal tax (around 6-8%) on the theoretical income tax on their UK state pensions.

It is to avoid upsetting older retirees, in their 70ies, 80ies and 90ies that the Belgian and British negotiators introduced a transitory rule. This is the exception in Article 18 (b).  Pensioners who had already been drawing their pension before the Protocol entered into force, that is 1 January 2013, will continue to be taxed at home only. They are not treated better or worse than before, and it is a transitional measure, every year there are less and less of them.

For State Pensions?

That this exception covered state pensions made sense because there are far more British retirees who receive state pensions than private pensions. State pensions are generally smaller than private pensions, in particular if they are paid out for a stint of a couple of years in Belgium.  Private pensions paid from Belgium can be substantial after a long career in the low countries. Moreover, there are not that many Belgian private pensions that pay annuities, as pension schemes are geared to be redeemed upon retirement with a favourable tax regime of 10%.

In Belgium, the government explained that this was the case for state pensions and private pensions paid in respect of previous employment. It was not the case, however, for pensions paid to public servants, for pensions that were not paid in respect of previous employment (e.g. pensions for self-employed pensions) or for life annuities built up directly from capital accumulated outside an employment-related pension scheme.

The treaty was explained in the same way in the Legislation Committee in the Commons.  

Both countries have consequently applied this rule. The Belgian Federal Pension Office did not withhold social security or tax on Belgian pre 2013 state pensions and the taxman merrily collected the tax on British pre-2013 state pensions. HMRC did the same; they taxed Belgian pre-2013 state pensions received by British residents and they did not tax British pre 2013 state pensions paid to Belgians at source.

Unfortunately, the officials who negotiated the Protocol in 2009 have retired and their successors have no memory of this agreement. 

A new interpretation in Brussels

Then came 2020, when an official on the Belgian side, suddenly wondered if they had not read the text of Article 18 (b) wrong from the start.

They had always read “pensions and other similar remuneration under a pension scheme” as meaning (1) “pensions” as in state pensions and (2) “other similar remuneration under a pension scheme” as in private pensions for employees.

Now, if they read the text of Article 18(b) quickly and lobbed the two together as “pensions and other similar remuneration under a pension scheme”, only private pensions would benefit from the transitory rule, be they (i) “pensions under a pension scheme” or (ii) “other similar remuneration under a pension scheme”.Thatwould mean that state pensions should always have been liable to tax in the state that paid the state pension.

The Federal Pensions Office was alerted and told that they had to deduct tax at source from state pensions paid to British retirees. Instructions were given to tax officials dealing with British retirees. These retirees had already wondered why they suddenly received tax returns. At the same time the Pensions Office told them wrongly that they would have to start paying Belgian social security on their state pensions.

Panic and confusion all over.

The tax office went after retirees who had not filed tax returns for their Belgian state pensions and when asked if their pensions were liable to tax in Belgium, they initially even told them that pre-2013 state pensions were not liable to tax in Belgium. However, when the new instructions trickled down, they had to change their tune and request payment of the tax.

The UK retirees could not understand what triggered the change of the rule and they expressed their discontent on HMRC’s community forum where HMRC told them that pre-2013 pensions were liable to tax in the UK only.

The Belgian tax authorities maintained their position and sent out letters to distressed retirees telling them that they would be receiving a tax bill and that they would have to pay the Belgian tax. Apart from that, there was no problem, HMRC would just pay back the taxes they paid in the United Kingdom. All they had to do was start the Mutual Agreement Procedure of Article 25 of the double tax treaty.

Unfortunately, the answer is not that straightforward.

There is indeed a Mutual Agreement Procedure in Article 25 : when a taxpayer finds that he will pay tax that he should not pay under the double tax treaty, he may present his case the to competent authority of his own state of residence. British retirees must contact the department in HMRC that deals with MAP procedures (within three years).

HMRC will then contact the international department of the Belgian tax authorities and they will “endeavour to resolve the case by mutual agreement” “with a view to the avoidance of the taxation that is not in accordance with the Convention”. If they reach an agreement, both tax administrations will implement it “notwithstanding any time limits in the domestic law of the Contracting States”.

In other words, they have to find an agreement as to which tax administration can tax, and the other will have to reimburse the taxes.

That sounds fair, but as long as there is no agreement, the Belgian tax authorities will continue to send out tax bills. They have no alternative. If they don’t send out the tax bills in time, the tax is not due, and retirees may end up paying tax in neither country. And the MAP procedure can take years.

What are your options?

You can pay the Belgian tax, and wait for HMRC to pay the UK tax back, but it is unlikely that that will happen at the same time.

The best course of action is :

  1. Tell the Belgian tax authorities that you do not agree with them, that tax is due in the UK only, and that you start the MAP procedure with HMRC.
  2. Contact HMRC to start the Mutual Agreement Procedure egging HMRC to talk to the Belgian tax administration.
  3. Wait for the tax bill and appeal it (file a “reclamation” (i.e. an internal appeal with the Belgian tax authorities). That will be explained on the tax bill : you have six months. It is important that you ask the Conseiller Général to instruct the tax collection office not to collect the tax. If you have not agreed with the tax authorities, the entire tax is contested, and the tax cannot be collected.
    If you file an income tax return or if you agree with their figures, the tax or part of the tax is not contested and it can be collected, e.g. by withholding it from your Belgian State pension.
  4. Repeat every year.

In the best outcome, you will not pay tax in Belgium but in the United Kingdom, no harm done. In the worst case, tax will be due in Belgium and you can pay that off with the tax HMRC will pay you back.

You just have to keep in mind that Belgium charges 4% interest per year for late payment, even upon appeal. If you have the money to pay the tax, you will receive interest at a paltry 2%. One rule for the taxman, another for the taxpayer …

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Comments 14

  1. Hi Mark,

    very interesting comments about UK retirees. I have been following this saga on the HMRC forum and this is how I found this blog as somebody gave the link for this recent article.

    I am a British citizen with British pension started in 2019 and I recently retired in Belgium. I am domiciled in Belgium since the end of 2020 and therefore considered a Belgium tax resident.
    As per the Tax treaty, my British pensions should be taxed in the UK. This has been confirmed by HMRC and a tax accountant in Belgium.

    I have 2 questions about other types of income:

    1- I am considering accepting a Non Executive Director position for a British company located in London. I will be paid a quarterly director fees to assist to 4 quarterly board meeting and one or two connected meetings in London. So a maximum of 6 days in London for this position. Some of these board meetings will be held remotely, so I will not even have to assist to 6 meetings. This company does not have a subsidiary or sister company in Belgium.
    How will this income be considered by the Belgium Tax people? Article 16-1 of the UK Belgium Tax treaty says that fees derived by a resident of Belgium in a capacity as member of a board of a UK company MAY be taxed in the UK. What to that mean in practice? That these fees are taxable in Belgium and may also be taxed in the UK? or something else? The company told me that the fees will be paid directly to my UK bank account without any deduction and that I will have to report it to the tax authority. If only taxable in Belgium, will I report only the net fees after deducting travel and accommodation expenses incurred to attend the London meetings? or???
    How do you recommend to set up this situation the most efficient way?

    2- in the past, while in London I have acted as an expert witness. It was easy to set up, I registered as self employed and as the income was low I was exempted from charging TVA.
    I have been approached to do the same thing from Belgium, but I have declined as I do not now how complex it could be to do that from Belgium.
    Most or all of the work will be done remotely from Belgium, but I have to be ready to accept to spend a few days in the UK if the case goes to court.
    Article 14-1 of the tax treaty seems to cover this type of professional services which would be taxable in Belgium.
    What do I need to do to accept these jobs?
    Do I need to register as an independant? register for TVA? what else, is it as easy in Belgium as it was in the UK .
    What do you recommand? I am just interested to do this for interesting cases, but if setting this up in Belgium with require too much admin, I will not accept any.

    Thanks for your help

    1. Post
      Author
  2. Hello
    I also find this very interesting but wonder how this applies for the many people have SIP or QROPS pensions plans, and have been encouraged like mad to remove their pensions from existing plans in the UK. But as Belgian resident post Brexit, we have always been told UK pensions would be taxed in the UK (!) and all that is needed is to mention this in Belgian tax returns (where I understood we may still be liable to communal tax on the tax deducted in the UK, but nothing more (assuming tax rate is already at the max level in BE given this starts at ~40k€).
    There is no mention either on how lump sum withdrawals, which are allowed in the UK up to 25% (and tax free int he UK) are treated in BE.
    We were all meant to be so reassured that tax treaties would remain the same post-Brexit, that freedom of movement and hence pensions were still the pillars of EU etc etc…something tells me this is another classic empty promise
    Would love to hear if anyone has better information
    Thanks
    KR
    Doc

    1. Post
      Author

      Dear Doc,

      The article addresses UK residents who receive a pension from Belgium.

      • New (post 2013) UK retirees pay Belgian income tax on their Belgian state and private pensions as well as UK income tax with a foreign tax credit for the Belgian tax.
      • Old (pre-2013) UK retirees were only paying UK income tax on their Belgian state and private pensions, but they are told now that on their Belgian state pension they have to pay Belgian income tax as well as UK income tax with a foreign tax credit for the Belgian tax.


      As for Belgian retirees

      • New (post 2013) Belgian retirees pay UK income tax on their UK state and private pensions and in Belgium they have to declare these pensions but they are exempt in Belgium. (*)
      • Old (pre-2013) Belgian retirees were only paying Belgian income tax on their UK state and private pensions, but they are told now that on their UK state pension they have to pay UK income tax. In Belgium they have to declare these pensions but they are exempt in Belgium. (*)


      (*) Belgium exempts UK pensions with the “exemption with progression” method. “Exemption with progression” means that Belgium exempts the UK pensions but the Belgian tax authorities will take account of this exempted income to determine the tax rate that applies to any income that is taxable in Belgium. In effect this pushes the Belgian income in the higher tax brackets.

      This confirms your understanding that “as Belgian resident … UK pensions would be taxed in the UK (!) and all that is needed is to mention this in Belgian tax returns“. The pension would be exempted in Belgium, make you pay more tax on Belgian income, but you will “still be liable to communal tax on the tax deducted in the UK”

      As for lump sum withdrawals, which are allowed in the UK up to 25% (and tax-free in the UK). They have to be exempted in Belgium, even if they are not taxed in the UK, but a withdrawal of €100,000 may push all your Belgian income in the 50% band.

      Please note: Brexit has nothing to do with this. The tax treaties remain the same post-Brexit and the EU rules still apply. However, what has changed is the reading of the double tax treaty between Belgium and the UK. The same text is read differently now, this just happens to coincide with Brexit.

      And that different reading is disputed …

      We will post some new articles on the subject of pensions.

  3. Hi Mark,

    Just to clarify. I am about to start receiving my Belgian state pension for the first time. I was told that my “Payer a vous” would be X but Y arrived in my bank account. Y was approximately 17% less than X. This does not seem to correspond to any Belgian tax rate I can find – any thoughts?
    Now that my pension is being taxed (by the looks of it) in Belgium. How do I declare this on my UK account – or do I even need to bother since tax has already been paid?

    The amounts involved are VERY small (under £100 per month) so the hassle completing the Belgian non resident tax form seems a lot of work for so little reward.

    1. Post
      Author

      Dear Kenneth, 

      There is a 3.55% INAMI and a 0-2% social security contribution (see here). 
      And then the pension office deducts tax, normally starting at 25%.

      You will receive a statement every year of how much you received in the previous year and what they deducted. And then, in September-October, you will have to file a Belgian tax return for the pensions received and sometime in the following year you will receive a tax bill “avertissement-extrait de rôle”.  

      In the UK, you do not have to report your Belgian state pension. HMRC confirms that if there is a Double Tax Agreement (‘DTA’) and “If the DTA gives exclusive taxing rights to another country, no UK tax is payable and so no relief will be available.” However, “you are encouraged to provide further details in the ‘any other information’ section of the SA100 (page TR 7).”

      I would suggest you mention; “I receive a pension from the Belgian State, this is exempt in accordance with article 18 of the Double Tax Agreement with Belgium.”

  4. Marc, I don’t think your reply of 12 November is quite right about UK tax relief – if Belgium is right and the pension is to be taxed wholly in Belgium, it should not be included in UK taxable income at all, and Foreign Tax Credit Relief is not due.

    1. Post
      Author

      Thank you, Chris, for correcting me.
      If one receives a Belgian state pension, one does not have to report it in one’s UK tax return. HMRC confirms that if there is a Double Tax Agreement (‘DTA’) and “If the DTA gives exclusive taxing rights to another country, no UK tax is payable and so no relief will be available.” However, “you are encouraged to provide further details in the ‘any other information’ section of the SA100 (page TR 7).”

  5. Marc, this thread is very interesting as I am also caught in the new legislation from Belgium! As a UK resident I had thought that Belgian pensions taken before 2013 were exempt from Belgium taxation but it seems that this is now no longer the case. Are you aware of any updated discussion/agreement between HMRC and the Belgian Authorities as to when the taxation in Belgium should start? I had heard that it would be from 2018 but cannot find any reference to this.
    Many thanks

    1. Post
      Author

      Dear David,

      The Belgian tax authorities will only go as far back as they can. In 2022, they can only tax the income for 2019, 2020 and 2021. The 2018 could be taxed until 31 December 2021, this means that the tax bill had to be sent out before that date. If they try to investigate 2018 in 2022, they would be too late. They can go back a further 4 years, but only in cases of tax fraud which is clearly not the case here.

  6. Marc,

    Thanks for your article on “Confused UK retirees …”, which I’ve just come across. I certainly fit into that category!

    I live in Belgium. Prior to coming to Belgium to continue my career, I lived in the UK. I receive two pensions from my time working there. My British Telecom (BT) pension, together with UK state pension, has always been taxed in the UK.

    Last month I received notice from the Belgian tax authorities saying that my pensions should in fact be taxed in Belgium, and not in the UK. The Double Taxation Treaty between the UK and Belgium says if you started to receive your pension prior to 1 January 2013, then the pensions should be taxed where you live, and not at source.

    However, according to the Belgian tax people, it makes a difference if the pension comes from a public or private body. In my case this makes the issue complicated. I started working for the General Post Office (GPO) in 1963. So, originally my employer was a public body. After much change in UK Government policy, the telecom side of the GPO, i.e. BT was privatised in 1984. So my occupational pension is both public and private!

    I ceased receiving a salary from BT in 1990, so my pension contributions in the UK were made largely to a public body.

    As an aside, having looked at the text of the Convention on double taxation, I have difficulty to see where the distinction between private and public pensions are made in the text. But I don’t have legal background.

    Many thanks if you have any advice on this matter.

    Regards,
    
Brian Jenkinson

    1. Post
      Author

      Dear Brian,

      Thank you for your comment. It raises an interesting question.

      If I understand correctly, you took up your pension before 1 January 2013 and, therefore, it is liable to tax in Belgium (article 18 of the double tax treaty between Belgium and the UK).

      However, remunerations and pensions paid for (UK) government service are liable to tax in the UK (article 19).

      2.a) Notwithstanding the provisions of paragraph 1, pensions and other similar remuneration paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

      Unless you are a Belgian resident, and you have Belgian citizenship.

      b) However, such pensions and other similar remuneration shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State.

      I trust you do not have Belgian citizenship.

      I assume BT took over the activities of the GPO as well as the pension obligations as you are paid by the BT pension scheme.
      The question then is what are “pensions […] paid by, or out of funds created by a […] State, a political subdivision or a local authority […] in respect of services rendered to that State or subdivision or authority.

      The pensions are now paid by a private pension fund, but they were created by the GPO. I think there is scoep for interpretation there. But how do you prove that and how much was paid by the GPO?

  7. Hi Marc

    I started receiving my Belgian state pension gross in May 2019 in the UK where I reside. I submitted the Belgian non-resident tax declaration and prepay “versements anticipes” at what I guessed would be my tax rate. Optimistically I thought around 10 percent for 2020 and I’d even naively hoped for a small reimbursement!

    To my disappointment my tax bill greatly exceeds my “versements anticipes”. On a small Belgian state pension based on 19 years work as a secretary, I am being taxed for 2020 income at 20 percent (8.9 percent in 2019) and there are “centimes additionnel” of 7 percent . I had hoped to get a Belgian tax free allowance but it appears to me that this cannot have been applied in 2020, I suppose as my Belgian pension is less than 75 percent of my total income? When I submitted my Belgian tax return, I did not report UK tax paid on my non Belgian pension income. This means that the Belgian calculation of the amount to be taken into condideration to calculate the reduction of tax on my Belgian state pension includes income that has already been taxed in the UK, and that the centimes additionnels are on income taxed in the UK. Did I make an error in not reporting UK tax paid on the non Belgian income? If so in what box should it go for any error I now report? I was unpleasantly surprised to see my tax rate increase from 8.9 to 20 percent and not to seem to get a tax free allowance. The reduction of tax on my pension in 2020 is 50 percent less than for 2019 income too. I’m worried I’m making expensive mistakes – I reported gross amounts for my UK retirement income but I made no mention of UK tax paid.

    I understand the logic of Minfin wanting to tax the Belgian pension of non residents in the UK but when one reaches one’s 80s or 90s will pensioners have the energy to do 2 tax returns and, far worse, without any Belgian family, who prepares the Belgian tax return if one ends up incapable of handling one’s affairs? Most care home staff in the UK very sadly do not speak French or Flemish and a UK lawyer that speaks French would charge a fortune and only be far away in a big city. Thinking of pensions in terms of the tax reporting of elderly, vulnerable and possibly mentally incapable people, perhaps the easiest option for the retiree is to pay tax in the country of residence? That said, I’m now used to doing 2 tax returns.

    Meanwhile, do you think I have made a mistake in reporting to MinFin gross non Belgian pension income – with no mention of UK tax paid? No tax is deducted at source from any of my income and is either prepaid or on demand to both Belgium and the UK.

    Best regards
    Pamela

    1. Post
      Author

      Dear Pamela,
      I can understand that the tax rate on your pension has gone up from 8.9% to 20%. You had a full year’s pensions in 2020 and only half year in 2019. However, it is difficult to work out whether the tax was calculated correctly without seeing the tax return and the tax bill.
      A few notes:

    2. A pension that is paid by the Belgian Pension Service to a resident of the United Kingdom is indeed liable to tax in Belgium in accordance with Article 18 of the double tax treaty between Belgium and the UK.
    3. You are only entitled to a personal allowance of €8,890 (for 2020) if your Belgian pension is 75% or more of your total earnings and pensions in 2020. There is a box where you have to report how much you earned / pensions you received outside Belgium. I guess you did not have 75% as you have worked 19 years in Belgium and over 20 years elsewhere.
    4. The reduction of tax on your pension is degressive, but I cannot comment on that without the figures.
    5. The UK tax paid on your non-Belgian income is irrelevant to calculate the 75%, deducting the UK tax would mean that you had less income outside Belgium. You should not deduct it.
    6. There are indeed “centimes additionnels” calculated at 7% of the tax due.
    7. Unfortunately, that you have to pay tax on your pension in Belgium is not a decision taken by the Belgian tax authorities, but a result of the double tax treaty between Belgium and the United Kingdom.

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