As you are no longer a resident of the UK, and are therefore not a UK tax payer, you will no longer automatically be allocated a Personal Tax Code – herein lies a potential issue. Yes, you can still take the 25% tax free lump sum, but the remainder of your pension pot will initially be taxed at either the Emergency Tax Code Rate of 1060L (W1, M1 [allowing you to earn £1,060 before paying tax in any tax year]) OR be allocated a BR (Basic Rate) Code of 20%, until HMRC decides upon which Tax Code you are eligible for as a non-resident.
Most importantly, in order for you to reclaim any overpayment of tax due, you would then have to apply for a refund with the Hacienda here in Tenerife. This would, of necessity, require the services of a Gestoria to assist in the completion of the not uncomplicated paperwork involved in such a claim, and also the additional paperwork of an annual tax return (should you not already be required to complete). In addition to this, if you have not previously completed the Modelo 720, which is a requirement for anyone with Worldwide assets in excess of approximately £40,000 residing in Spain, which of course includes any Pension Provision (and was discussed in last month´s column) then it may well be the case that in order to claim any overpayment via the Hacienda, you will need to declare such assets.
What seemed initially as a great offer from the UK Government in being able to cash in your pension pot is now, for expats anyway, becoming a very difficult and possibility unwise decision to take when considering the overall picture and it may be more tax efficient certainly to consider transferring the whole of the pension elsewhere.
In addition to this, there are a number of Pension Providers in the UK, including Friends Life, who are not actually offering policyholders Flexi-Access Drawdown currently.
If you are in any doubt about how the changes will affect you personally, or are unsure about whether the decision to access a lump sum is right for you now, please seek professional advice.
By Laura Mann, Regional Manager Canary Islands