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31 Oct 2014

Commissioner’s operational position on foreign tax credits for amounts withheld from United Kingdom pensions

CIR's operational position on QB 14/12: Income tax - foreign tax credits for amounts withheld from United Kingdom pensions.

The purpose of this item is to inform taxpayers of the operational position being adopted by the Commissioner in relation to this matter.

The Commissioner has released QB 14/12 Income tax - foreign tax credits for amounts withheld from United Kingdom pensions.

This Question We’ve Been Asked (QWBA) confirms Inland Revenue's long-standing view that, in relation to a United Kingdom pension received by a New Zealand tax resident, New Zealand has the sole taxing rights under the double tax agreement with the United Kingdom. This means that New Zealand tax residents cannot claim a foreign tax credit in New Zealand for any amounts withheld by their United Kingdom pension provider from their United Kingdom pension and that pension must be returned as income in New Zealand.

If you have previously claimed a tax credit for any tax withheld on your United Kingdom pension, we suggest you discuss the matter with your tax advisor, or us, and consider making a voluntary disclosure. If you are a tax resident of New Zealand and you receive (or about to receive) United Kingdom pension payments, to make sure you are not taxed further in the United Kingdom and to obtain a refund of amounts withheld in the United Kingdom in past years you should:

  1. Complete the "Application for relief at source from United Kingdom income tax and claim to repayment of United Kingdom income tax form New Zealand - Individual" which is on the HM Revenue & Customs (HRMC) website. You can either print the form directly from the website or save it to your computer as a PDF, then print it.
  2. Send us your completed form and we will process and send the form to HMRC. They will issue a directive to your pension provider to stop the deductions in their system. The form also enables you to claim back amounts incorrectly withheld in the United Kingdom. The address to send your completed form is:

    Inland Revenue
    PO Box 39010
    Wellington Mail Centre
    Lower Hutt 5045

    You can also contact us by Secure mail with the following details:

    Subject: Foreign Pension
    Account: All other
    Category: All other

For any general enquires of a general nature you can email [email protected] (Do not send any taxpayer or customer information to this email address).

The HRMC "Form New Zealand - Individual" asks at Part B:

Question 2:

"On what date did you become resident in New Zealand?"

Question 3:

"From what date have you paid, or will you pay, tax in New Zealand on the income that you include in this claim? (This may differ from the date you have given in answer to question 2.)

If you do not have to pay tax in New Zealand on this income please give the reason (s) on a separate sheet."

All taxpayers (to which this form applies) must fill in Question 3 with the date you have paid or will pay tax in New Zealand on income included in this claim. For a transitional resident the pension is generally only taxable from the date when your transitional residency ends (or has ended) which is of course later than the date you become resident, so you need to enter that later date as the answer for this question. The later date will have no impact on the requirement on the United Kingdom to provide relief from taxation.

Additionally, you will need to give details of your transitional residency stating the reason you won't be paying tax on a separate sheet and attach it to the form. For example:

  • that you arrived in New Zealand on (day, month, year) (same date as question 2) and are eligible for a "temporary tax exemption on foreign income" for new migrants and returning New Zealanders (often referred to as transitional residency), and
  • that you are not required to pay tax on foreign income in New Zealand for 4 calendar years, (up to 49 months) for the dates from (day, month, year) (same date as question 2) to (day, month, year) (same date as question 3).

If you are in doubt please contact us at the above address before you send us any application for double taxation relief. Also, if as a result of incorrectly filling in the HMRC form you have been treated as electing out of the transitional residence rules you should contact us.

If you have claimed a foreign tax credit in prior tax returns, you should ensure going forward that you no longer claim any foreign tax credits from your United Kingdom pension income in your New Zealand tax return. Taxpayers making pre-audit voluntary disclosures will not be subject to shortfall penalties.

If you make a voluntary disclosure because you have claimed these tax credits in the past you will only be required to make a disclosure to amend your returns to remove the foreign tax credit in relation to the 2013 (1 April 2012 - 31 March 2013) and/or 2014 (1 April 2013 - 31 March 2014) tax years.

We are aware that the HMRC will provide refunds for periods earlier than the 2013 tax year if applicable (provided it is not in respect of tax periods greater than 6 years old). The concessionary treatment for voluntary disclosures outlined in this item only applies if the taxpayer has not received refunds from HMRC in respect of periods earlier than the 2013 tax year.

If an earlier refund has been or is going to be obtained by HMRC, the Commissioner will assess the taxpayer for those earlier periods, as opposed to simply the 2013 year onwards. Taxpayers who receive (or have received) earlier period refunds in this way must advise the Commissioner accordingly when they are received. Although this will result in reassessments for those earlier periods no penalties or use of money interest will be imposed in relation to those earlier periods.

The due date for payment of the increased liability for New Zealand tax will be deferred to allow you to receive the refund from the United Kingdom. This means that we will not be expecting any money from you until you have received the refund from the United Kingdom. No late payment penalties will be applied on your New Zealand tax liability provided you pay the increased amount of tax on or before the new due date (some use of money interest may apply for the 2013 tax year onwards).

Foreign exchange differences (and use of money interest if applicable) may result in you having to pay additional amounts to Inland Revenue to meet your tax liability which is over and above the refund received from HMRC.

In a limited number of cases, the pension may not have been taxed in either the United Kingdom or New Zealand. In those cases the concessionary approach outlined in this item does not apply and we suggest that taxpayers in that situation who wish to make a voluntary disclosure contact us to discuss further.

If interest is charged for the 2013 tax year onwards it is possible to apply in writing for a remission of any use of money interest imposed if you consider that any of the grounds in Standard Practice Statement SPS 05/10 - Remission of penalties and interest are satisfied, for instance if you consider that you have relied on incorrect advice from Inland Revenue in taking your tax position.

If you have difficulty paying any of the New Zealand tax outstanding (over and above the refund from the United Kingdom) you should contact us. It may be possible to enter into an installment arrangement) or apply for relief from the outstanding tax if recovery would place you in hardship.

For further information see Standard Practice Statement SPS 11/01 Installment arrangements for payment of tax or Standard Practice Statement SPS 06/02 Writing off outstanding tax.