UK Pension Warning: Brits Abroad Might Face Hefty Tax Bills

Many British pensioners living overseas may be in for a shock. They followed Government advice, believing they could take a quarter of their pension pot tax-free at age 55. However, this might not be the case if they’re outside the UK, the Daily Mail reports.

The Guidance in Question

The Department for Work and Pensions-sponsored Money Helper-Pension Wise guide led many to believe they could take this tax-free lump sum. In the UK, taking 25% of your pension pot tax-free is quite common, and a favourite among retirees. But this doesn’t apply everywhere.

Countries like Australia, France, and Spain might not recognize this tax-free rule. As a result, Brits in these countries could end up paying almost half of this money in taxes!

Did They Know?

Financial experts are raising alarms, saying the guide missed important details. Instead of clearly warning Brits living or planning to live abroad, the guide kept stating that people over 55 could “usually” take out 25% tax-free. The guide seemed targeted towards those with ‘defined contribution schemes’—where you and your employer contribute, and you can access from 55. But it missed warning those looking to access their pensions outside the UK.

Real People, Real Problems

Robert Dart, who now lives in Australia, almost lost over £8,000 because of this misleading guidance. After being directed to Pension Wise for advice, he was about to withdraw £25,000 from his UK pension. He believed, based on their advice, it would be tax-free. Luckily, a financial adviser stepped in just in time, warning him of the tax he’d face from the Australian government.

“It was a real shock,” Mr Dart said, adding that he’s worried for others who might not have the same warning he did.

Experts Weigh In

Geraint Davies, from financial advice group Montfort, expressed disbelief. “This is supposed to be a guide for those who don’t understand pensions, but it ended up misleading many,” he said. Many have trusted this government-backed guide, and some might have already faced the repercussions, with more possibly yet to realize the implications. It’s like “a ticking time-bomb,” Davies added.

Jeff Bowman, an international tax consultant, chimed in, “What people dislike more than a tax bill, is an unexpected tax bill.”

Official Response

A spokesman from the Money & Pensions Service, which oversees Pension Wise and Money Helper, responded, saying their aim was to provide guidance. But they also emphasised the need for people to consider other resources and get regulated financial advice. They pointed out that the guide encourages readers to consult Money Helper, which includes details on retiring abroad.

Takeaway for Brits Abroad

If you’re a British pensioner living abroad or planning to move, it’s crucial to understand your tax obligations before withdrawing from your UK pension pot. It’s always best to seek expert financial advice, especially when navigating complex international tax rules. Don’t solely rely on general guidance, even if it’s government-backed.