How To Apply For An NT Tax Code For A UK Pension
LEARNING OBJECTIVES
At The Wealth Genesis, we’re passionate about empowering our clients with the knowledge and knowhow to navigate life abroad.
IN THIS ARTICLE, YOU WILL LEARN THE FOLLOWING:
What an NT code is and how it applies to pensions
The application processs
The benefits of having an NT code
How long it takes, dealing with HMRC
The NT (Nil Rate) Tax Code refers to the income tax code for your earnings. In the UK, the Nil Rate Tax Code is a special tax code assigned to individuals who are exempt from paying UK tax on their income, particularly applicable to pensioners.
It's fundamental for those enjoying retirement benefits, as it ensures that the correct tax treatment is applied to their pension income.
This article will focus on how and why you want to obtain one. Specifically for your UK pension, including an International SIPP when no longer a UK tax resident.
What is an NT Tax Code?
In short, once obtained, you do not pay UK income tax on any earnings, including pension income. All UK pension income, once over the tax-free amount of £12,570 is subject to PAYE income tax. For this article, we solely focus on UK Pension income tax relief for non-UK residents. If your position relates to other areas, we suggest contacting a regulated tax expert in your jurisdiction.
Who is an NT Tax Code for?
If you live in a country that has a double taxation agreement with the UK and you do not want your pension scheme to hold back tax. A full list of which, can be found here. You must, of course, be a tax resident in your country of residence.
What does Tax Code NT mean for my Pension Withdrawals?
Once you have the NT code in place, the system will pay all pension withdrawals to you gross of UK tax, regardless of the value. There is, however, likely to be tax due in the country you reside.
Why Get An NT Code if I still have to pay tax?
If you want to receive UK-sourced pension income free of UK tax, you need an NT code. It will save you from being taxed twice. Without the Nil Rate tax code, taxable income will be held back at source by your UK pension provider, to be paid to HMRC. You will also need to declare the income you have received on your tax return in your current country.
As such, the following year, tax will be due on the money withdrawn. At the same time, you will need to claim back the tax paid to HMRC.
The standard tax code held on file is 1257L. This means you can receive up to £12,570 per annum tax free. However, worth noting is the setup of your UK pension scheme or International SIPP.
Many providers operate on a month-by-month basis. The result is, you are only able to withdraw up to £1047 per month tax-free. Thereafter, you will fall into the basic income tax of 20%.
In this scenario, on a withdrawal of £12,570 in a tax year, over £2300 tax is held back at source,.
Should you have an emergency tax code on file, the sum held back will be far higher.
HMRC NT Tax Code Application
To start, you need to complete the Double Taxation forms to prove you are a resident in the country you reside. Some countries such as France and the US have individual forms available whilst others use a generic form such as Portugal. If you are unsure you can contact HMRC directly here, to check.
Alternatively, you can call HMRC at:
Telephone: 0300 200 3300 Outside UK: 00 44 135 535 9022
On the Double Taxation form, under section C2, you will require unique information on your pension. This includes the Pension Reference Number. For this information, you can contact your pension provider.
HMRC NT Code Average Processing times
Processing times vary between 3 - 6 months from the date of submission. We strongly recommend applying via the Government gateway to avoid even longer delays.
NT Code Obtained, What Next?
Once HMRC has granted an NT code, it will show up on your Government Gateway Login. Here you will see your Pension Trustee Provider name with NT Code next to it.
We strongly advise taking a test withdrawal at this point. The first withdrawal does not have the Nil Rate banding applied and as such, will incur tax.
So even though the tax code has been granted, when the pension trustee reaches out to HMRC as part of the PAYE income payment, you will be taxed.
FAQs
-
Each NT code is fixed to the area it is applied for. If you hold one for UK property income, it will not be applied to your UK pension.
-
The NT codes are specific to the pension schemes. If you have three private pensions, you would need to apply for three NT codes. It would also make sense to consider consolidating them into one scheme.
-
Subject to not being on emergency tax, you can withdraw £1000 per month without any tax being held back by your pension provider. However, unless you live in a country with no income tax, there will still be tax due, depending on the tax banding in your country of residence.
-
The first withdrawal is always taxable, that's why we recommend taking a test payment.
-
International SIPP, UK personal pension, Defined contribution scheme, UK SIPP, and any registered UK Pension scheme. It does not apply to a QROPS.
