First State Pension payment query

[bjmarren]

Hi All

I've just received my first state pension payment (hooray) and was trying to work out exactly what it represented in terms of days/weeks/period etc. I should add that its paid into my local bank account here in Bulgaria, but local currency conversion is not the issue here. I received a letter from DWP, end of Feb, telling me my weekly state pension had been calculated at GBP 178.05 effective from 28th March 2023 (date of my 66th birthday), but would be increased to GBP196.03 from 13th April. The rates are what I expected and I have no issues with them. A DWP payment appeared in my local account this morning and I was trying to work out what it represented in terms of days/week. I know payments are made every 4 weeks and are made in arrears, but could anyone tell me, given the above figures and timeline, how this first payment would have been calculated? Also, is there anywhere online where I can see the payment itself, which is what I can do with my Civil service pension. I've been non-resident for tax purposes in the UK, since 1998 so I wouldn't have expected any tax to be have been deducted on the payment, even though the 2 pensions take me above the taxable limit, but I wasn't informed that this would happen by DWP, so assumed it wouldn't.

Thanks in advance,

Brendan

[Urbandreamer]

I could be wrong, but I would guess that you may find that tax has been erroneously charged on the pension.
You may need to establish if that is or is not true.

HMRC and pension providers make a number of assumptions, which are correct in the majority of cases. Ie when you receive your first payment, then you will receive similar payments in the future. That one commonly causes a tax overpayment that needs correcting, with people who take a lump sum as a first payment.

In your case, I suspect that they have assumed that, like most, you are subject to UK tax.

[BullDog]

I could be wrong, but I would guess that you may find that tax has been erroneously charged on the pension.
You may need to establish if that is or is not true.

HMRC and pension providers make a number of assumptions, which are correct in the majority of cases. Ie when you receive your first payment, then you will receive similar payments in the future. That one commonly causes a tax overpayment that needs correcting, with people who take a lump sum as a first payment.

In your case, I suspect that they have assumed that, like most, you are subject to UK tax.

Need to check the dual tax treaty with Bulgaria. I think state pensions might be subject to country of origin tax in this case UK. While private or company pensions are taxed locally, in this case Bulgaria? Worth a quick check, the dual tax treaties I have read are quite clear and relatively easily understood. HTH.

[mc2fool]

Well, your first payment should be your amount due from your 66th birthday up to the date of payment (not sure if that's inclusive or not).

Does the info you have tell you what day DWP paid it (rather than the date you received it)? You can find out what day of the week your pension will be paid from the last two digits of your NI number. See https://www.gov.uk/new-state-pension/what-youll-get

The tax treaties with Bulgaria are at https://www.gov.uk/government/publications/bulgaria-tax-treaties.

No, there is nowhere online where you can see the payment itself (from DWP's side; of course you can see if from your bank's side).

[ian56]

Hi All

I've just received my first state pension payment (hooray) and was trying to work out exactly what it represented in terms of days/weeks/period etc. I should add that its paid into my local bank account here in Bulgaria, but local currency conversion is not the issue here. I received a letter from DWP, end of Feb, telling me my weekly state pension had been calculated at GBP 178.05 effective from 28th March 2023 (date of my 66th birthday), but would be increased to GBP196.03 from 13th April. The rates are what I expected and I have no issues with them. A DWP payment appeared in my local account this morning and I was trying to work out what it represented in terms of days/week. I know payments are made every 4 weeks and are made in arrears, but could anyone tell me, given the above figures and timeline, how this first payment would have been calculated? Also, is there anywhere online where I can see the payment itself, which is what I can do with my Civil service pension. I've been non-resident for tax purposes in the UK, since 1998 so I wouldn't have expected any tax to be have been deducted on the payment, even though the 2 pensions take me above the taxable limit, but I wasn't informed that this would happen by DWP, so assumed it wouldn't.

Thanks in advance,

Brendan

Well, your first payment should be your amount due from your 66th birthday up to the date of payment (not sure if that's inclusive or not).

I received my first state pension payment on 23rd December 2022, Friday being my normal payment day based on my NI number. My birthday was on Saturday 3rd so, neatly, my first payment covered three weeks exactly (using inclusive dates) and the payment was exactly what I was expecting, namely 3/4 of my normal 4 weekly amount.

My letter detailing the new rate stated it would be calculated from week beginning 10th April. I was wondering if my payment on Friday 14th April would be apportioned between the old and new rate but it was exactly the same amount I had received in January, February and March so I expect my next four weekly payment will be the first at the new rate.

It looks to me as HMRC apportion on a weekly basis as the prefilled figure on my self assessment tax return seems to be calculated up to and including Friday 7th April. In trying to calculate my state pension for 2022-23 I had worked out my daily rate up to and including 5th April for the final part week (5days, Saturday to Wednesday) as it was not a complete week and noted the HMRC had come up with a slightly different figure.

[bjmarren]

Thank you all for your very helpful replies, and apologies for not replying earlier, but I've been teaching all day and have just had time to read your replies. The mention and link to the UK/Bulgarian tax treaty is very helpful and I should have made a start there myself really. Coincidentally, I received a WhatsApp from my sister in the UK a bit earlier today, telling me she had received a letter me for from the International Pension Centre informing me about my first pension payment and confirming it was for the period 28th March to 19th April inclusive, using the old and new rate. I checked the figures and it works out exactly and was paid gross. I gave the DWP my sisters UK address as an alternative address as the postal service between the UK and Bulgaria is not that great.

As I mentioned above in my original mail I also receive a Civil Service pension and combined amount of the 2 pensions is now well above the current UK 12k limit so I'll check the tax treaty so see how they will treat them regarding tax. Pensions in Bulgaria are tax exempt so I'm hoping I'll be treated under the Bulgarian system, but we'll see!

Once again thanks for your replies and advice.

Brendan

[bjmarren]

Hi All again - a year on from the last post on this topic! Where has the time gone?

Whilst I meant to sort out, in my mind at least, my situation regarding how I stand, tax wise, regarding my State Pension, I only got around to looking at the Double Tax agreement between Bulgaria and the UK a couple of days ago and having read the relevant paragraphs about 10 times, I think I understand my position, but I'd appreciate any views that any of you could give on my understanding of the agreement.

Just to recap, I've been non-resident for tax purposes since 1998, living in Bulgaria. I started receiving a modest Civil service pension from 2017 which was well within the single persons allowance of GBP12,570. However, I've been also receiving the State pension since April last year and the total amount is now well above the personal allowance. Pensions in Bulgaria are not taxed, and I'm trying to see if I can be assessed under the Bulgarian system!

Below I have copied the relevant parts of the double tax agreement, in italics and where the phrases "Contracting State" and "Other Contracting State" are used, I have put bold the country which it refers to. I've also put my own understanding of the details underneath.

"ARTICLE 17
Pension
1. Subject to the provisions of paragraph 2 of Article 18, pensions and other similar remuneration paid to a resident of a Contracting State (UK) shall be taxable only in that State. However, where such pensions and other similar remuneration arising in the other Contracting State (Bulgaria) are not subject to tax in the first-mentioned State (UK), that other Contracting State (Bulgaria) may tax such income.

Me: As I’m not a resident of the UK this doesn’t apply to me, and I don't have a Bulgarian pension. IMO.

2. Not withstanding the provisions of paragraph 1, pensions and other similar remuneration paid under a public scheme which is part of the social security system of a Contracting State (UK) shall be taxable only in that State (UK).

Me: This confirms that I can only be taxed on my State pension in the UK.

"Article 18
Government Service
2 (a) Notwithstanding the provisions of paragraph 1, pensions and other similar remuneration paid by, or out of funds created by, a Contracting
State (UK) 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 (UK).

Me: This refers to my Civil Service pension only. Also, saw this also on the GOV UK site.

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

Me: This doesn’t apply to me as I’m only a resident of Bulgaria, not a national. However, does it suggest that if I gave up my British nationality for Bulgarian nationality, I would come under the Bulgarian system, whereby pensions are not taxed. I currently have dual nationality, as my parents were Irish and would consider giving up my UK nationality for Bulgarian citizenship if necessary.

Thanks for getting this far, if indeed you have, and any comments or otherwise on the above would be very much appreciated. I haven't received any correspondance from HMRC requesting that I submit a tax return for last year but the postal service between the UK and Bulgaria is terrible. Also, Being non-resident I'm not allowed to submit an online assessment return, again confirmed by the UK GOV site.

Thanks in advance.
Brendan

[Seasider]

In Article 17 why have you identified the Contracting States the way you have? I think it may be more correct to put Bulgaria for UK and vice versa.

I think Article 17 applies to private pensions not the State Pension so it probably does not matter.

[genou]

I have put bold the country which it refers to. I've also put my own understanding of the details underneath.

I'm with seasider here - you have Article 17 back to front. You are resident in Bulgaria ( the Contracting State ) which would mean that only Bulgaria can tax your state pension. But they don't levy a tax on it , which means that the state in which the pension arises - the UK ( the Other Contracting State ) - can choose to tax it. But they don't. So the UK State pension is un-taxed in my view.

The civil service pension is taxable in the UK, despite your non-residence ( this is a standard DTA clause ). But it seems if you became Bulgarian and ditched UK citizenship, it would be taxable only in Bulgaria.

But since your state pension is untaxed, and you say your CS pension is below your PA, it is not a reason to change citizenship.

[bjmarren]

In Article 17 why have you identified the Contracting States the way you have? I think it may be more correct to put Bulgaria for UK and vice versa.

I think Article 17 applies to private pensions not the State Pension so it probably does not matter.

Hi Seasider,

Thanks for your reply.

I identified the Contracting States the way I have, as I assumed the term "Contracting State" referred to the Country that initiated the payment, but that is just my interpretation of the phrase. The actual wording in the tax agreement is "the terms "a Contracting State" and "the other Contracting State" means Bulgaria or the United Kingdom as the context requires;". I took this to mean that the Contracting State could be either, based on my interpretation that the Contracting State is the country who initiates the payment, but of course I could be wrong, which is why I was looking for comments on whether my interpretation is correct or not. Thanks for raising this.

I assumed that Article 17 relates to State Pensions only whereas Article 18 relates to private pensions, but reading it again maybe Article 18 does not refer to pensions at all. Reading the details for a 12th or more time still does not fully explain my situation. If you think that Article 17 applies to private pensions only, do you have any thoughts on what happens to my State pension payments, as I'm still not completely clear.

Brendan

[bjmarren]

I have put bold the country which it refers to. I've also put my own understanding of the details underneath.

I'm with seasider here - you have Article 17 back to front. You are resident in Bulgaria ( the Contracting State ) which would mean that only Bulgaria can tax your state pension. But they don't levy a tax on it , which means that the state in which the pension arises - the UK ( the Other Contracting State ) - can choose to tax it. But they don't. So the UK State pension is un-taxed in my view.

The civil service pension is taxable in the UK, despite your non-residence ( this is a standard DTA clause ). But it seems if you became Bulgarian and ditched UK citizenship, it would be taxable only in Bulgaria.

But since your state pension is untaxed, and you say your CS pension is below your PA, it is not a reason to change citizenship.

Hi genou,

Many thanks for your reply.

I don't know why I assumed that the "Contracting State" had to be the UK, but obviously if I've got it the wrong way round then the State pension is not going to be taxed by the Bulgarian state (hurrah!) whilst it was clear to me that the CS pension would be as it was clearly stated on the UK GOV website. Presumably if the UK wanted to tax my state pension they could/would have done so by amending my tax code on my CS payslip, which still shows 1275L, or am I being naive about this. As I said before, I haven't received any correspondence from the UK regarding my State pension, so once again many thanks to you and seasider for replying and sense checking my assumptions and pointing out my misinterpretation of the clauses.

Cheers!

Brendan

[Seasider]

In Article 17 why have you identified the Contracting States the way you have? I think it may be more correct to put Bulgaria for UK and vice versa.

I think Article 17 applies to private pensions not the State Pension so it probably does not matter.

Hi Seasider,

Thanks for your reply.

I identified the Contracting States the way I have, as I assumed the term "Contracting State" referred to the Country that initiated the payment, but that is just my interpretation of the phrase. The actual wording in the tax agreement is "the terms "a Contracting State" and "the other Contracting State" means Bulgaria or the United Kingdom as the context requires;". I took this to mean that the Contracting State could be either, based on my interpretation that the Contracting State is the country who initiates the payment, but of course I could be wrong, which is why I was looking for comments on whether my interpretation is correct or not. Thanks for raising this.

I assumed that Article 17 relates to State Pensions only whereas Article 18 relates to private pensions, but reading it again maybe Article 18 does not refer to pensions at all. Reading the details for a 12th or more time still does not fully explain my situation. If you think that Article 17 applies to private pensions only, do you have any thoughts on what happens to my State pension payments, as I'm still not completely clear.

Brendan

I said Article 17 when I should have said Article 17.1. I think the natural reading of Article 17.1 is that the Contracting State is the one where you are resident and the other Contracting State is the one where the pension comes from.

Article 17.2 applies to the State Pension and in there you correctly identify the UK as the relevant Contracting State.

Article 18.2 applies to your Civil Service pension.

Article 17.1 would apply to some other sort of pension you might have.

[genou]

... Presumably if the UK wanted to tax my state pension they could/would have done so by amending my tax code on my CS payslip, which still shows 1275L, or am I being naive about this.

Not naïve - pessimistic. The UK does not tax non-residents in respect of State Pension. Normally taxed in country of residence, but it looks like Bulgaria is unusually generous.

[Lootman]

... Presumably if the UK wanted to tax my state pension they could/would have done so by amending my tax code on my CS payslip, which still shows 1275L, or am I being naive about this.

Not naïve - pessimistic. The UK does not tax non-residents in respect of State Pension. Normally taxed in country of residence, but it looks like Bulgaria is unusually generous.

Actually the UK does not tax non-residents on a range of UK-source income. There is no UK CGT on UK gains for foreigners, for instance. There is no withholding on UK-source dividends nor on UK interest paid. No withholding on the state pension even for UK residents, of course.

And where the UK does try and tax foreigners, such as on UK rents, its success is patchy. And of course tax treaties mitigate the effect anyway.

So perhaps one good thing about the UK is that it is generous in how it taxes non-residents (and non-doms, for now anyway).

[modellingman]

ARTICLE 17
Pension
1. Subject to the provisions of paragraph 2 of Article 18, pensions and other similar remuneration paid to a resident of a Contracting State (UK) shall be taxable only in that State. However, where such pensions and other similar remuneration arising in the other Contracting State (Bulgaria) are not subject to tax in the first-mentioned State (UK), that other Contracting State (Bulgaria) may tax such income.

2. Not withstanding the provisions of paragraph 1, pensions and other similar remuneration paid under a public scheme which is part of the social security system of a Contracting State (UK) shall be taxable only in that State (UK).

Me: As I’m not a resident of the UK this doesn’t apply to me, and I don't have a Bulgarian pension. IMO.

Article 18
Government Service
2 (a) Notwithstanding the provisions of paragraph 1, pensions and other similar remuneration paid by, or out of funds created by, a Contracting
State (UK) 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 (UK).

Me: This refers to my Civil Service pension only. Also, saw this also on the GOV UK site.

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

Me: This doesn’t apply to me as I’m only a resident of Bulgaria, not a national. However, does it suggest that if I gave up my British nationality for Bulgarian nationality, I would come under the Bulgarian system, whereby pensions are not taxed. I currently have dual nationality, as my parents were Irish and would consider giving up my UK nationality for Bulgarian citizenship if necessary.

The correct interpretation of "Contracting State" and "other Contracting State" can be a bit tricky.

In Article 17 paragraph 1, the "pensions and other similar remuneration paid to a resident of a Contracting State" means, from your perspective, any pensions paid to you as a resident of Bulgaria - here the "Contracting State" is Bulgaria. Such a pension "shall be taxable only in that State" ie pensions are taxable only in Bulgaria by virtue of the UK-Bulgaria Double Taxation Treaty (DTT). However, the second sentence of the paragraph allows the UK (as "the other Contracting State") to tax such pension income if it is not subject to tax in Bulgaria.

Article 17 paragraph 2 overrides paragraph 1 in the case of your receipt of the UK State Pension since it meets the test that it is "paid under a public scheme which is part of the social security system of a Contracting State" - here the "Contracting State" is UK. So your UK State Pension is taxable only in the UK.

Your Civil Service pension is a "government pension" - see https://www.gov.uk/hmrc-internal-manuals/international-manual/intm343040 - so falls within paragraph 2 of Article 18, meaning it is taxable only in the UK (as long as you do not become a Bulgarian national) and does not fall within Article 17.

My conclusion is that under the terms of the UK-Bulgaria DTT both your state pension and Civil Service pension are currently taxable in the UK.

I don't know why I assumed that the "Contracting State" had to be the UK, but obviously if I've got it the wrong way round then the State pension is not going to be taxed by the Bulgarian state (hurrah!) whilst it was clear to me that the CS pension would be as it was clearly stated on the UK GOV website. Presumably if the UK wanted to tax my state pension they could/would have done so by amending my tax code on my CS payslip, which still shows 1275L, or am I being naive about this. As I said before, I haven't received any correspondence from the UK regarding my State pension, so once again many thanks to you and seasider for replying and sense checking my assumptions and pointing out my misinterpretation of the clauses.

Given the conclusions above I would have expected HMRC to have adjusted your tax code for the Civil Service pension to account for the commencement of your state pension. Whether you prompt them or enquire about this is something you may want to seek advice on. Unfortunately, you cannot simply submit an online self-assessment tax return as a non-UK resident. Instead you must use commercial software for online filing (e.g. TaxCalc). See https://www.gov.uk/log-in-file-self-assessment-tax-return I am not sure whether you can submit paper forms as a non-resident but I suspect you can.

As an aside, the DTT that I am familiar with is that for UK-Spain. This has similar Articles 17 and 18 but its Article 17 contains only the first sentence of paragraph 1 and has no paragraph 2. So unlike the case of Bulgaria, all pensions for UK nationals resident in Spain and arising from the UK (so including the UK State Pension) are only taxable in Spain except for "government pensions" which are only taxable in the UK.

modellingman