UK Expats – Forward Planning – Tax – Pensions – Entitlements.

UK Residents living in the Philippines – State Pension entitlement – Double taxation Treaty – National Insurance Contributions.

Are you a UK based resident who is shortly planning his retirement in the Philippines, if so, then welcome on board, because thats exactly what I

am doing, firstly though, I wanted to find out about non-residency and the rules, secondly, if I was non resident in UK, I wanted to find out about state pension provision for oversees residents, and if the UK had a taxation treaty or pensions treaty with the Republic of Philippines.

Forward Planning

Many of you, and this applies to a mainly British audience, (sorry for those of you who are from U.S.A. Australia, Korea, Japan, and EEC Member states,) will be thinking of your retirement in the Philippines, perhaps if you are fortunate enough to have made a private provision for your retirement plan, via lump sums, time deposits, and a few local businesses that can turn over some cash, this is a good start, and you are thinking along the right lines.

But have you given thought to some other areas that can provide you with income, this will of course depend on when you wish to retire, and more importantly at what age you will be when you do finally retire and ship out to the Philippines permanently.

Firstly though Non Residency and part Time UK based work.

I alluded to this subject very briefly during a discussion of UK Taxation and your responsibilities in my last column, the HMCR (Her Majesties Customs and Revenue Service) insist that all those who make money in the UK even if it is part time only, must make a self assessment return for that tax year.

This is so that they can assess, or you can via your accountant or agent, whether you are liable to pay income tax on your UK based income, as all UK based income is taxable, failure to make a return, can incur a penalty, thats of course if you stay in UK at the same accomodation and subject to them actually being able to locate you, thats if they have the resources to carry accomodation checks, that is of course unlikely, however that is the law, and a return is required, if you did not make your return, there may be a problem at a later date when you request a pension from the pension service.

So back to non-residency, I spoke about this before, the rules state that over a 4 year period, you may not claim to be non-resident if you spend more than 360 days across a 4 year period in the UK, or and this seems to be ambiguous, 90 days in any 1 tax year, not including your date of entry to UK and your leaving day.

How to you Claim non-residency ?

Its simple by making a tax return for that tax year, and claiming non residency on the tax return, you would show all your income, if below a turnover of £15,000, you would show a shortened form of return, if over £15,000 you will have to fill in a proper return, this of course is more of interest to self employed, or consultancy type work, done in UK.

If your gross turnover is below a certain figure, around £4650.00 you may on the basis of this figure, apply for exemption to UK National Insurance contributions Class 2.

However for the year 2006-2007 your non taxable personal allowance is £5035.00 and £5225.00 in 2007-2008.

As many of you might know, the basic rate of 10p in the £1.00 for the first £2150.00 in tax year 2006/2007 is going to be abolished in favour of a low band of basic rate to 20p in the £1.00.

At present taxes are based on the first £2150.00 at 10p, which is £215.00
Then between 2151.00 and 33,300 taxed at 22p in the £1.00
Then beteween 33,301.00 and above will be taxed at the Higher rate of 40p in the £1.00.

These are the current taxes, should your stay go over the 90 days in any 1 tax year, you will not be able to claim non residency, and will pay tax on all of your UK Income for that tax year regardless of time spent, even if its 91 days.

National Insurance Contributions and the UK State pension Service

So you might be able to do some commuting back to UK, but what if you dont want to do that, what if you are a man or woman who has reached state retirement age, up to 2010, women would receive a state retirement pension, and the 2nd state pension if they were employed at age 60, however, after this date, the state retirement age for women and men has been aligned to age 65.

Types of National Insurance Contributions and their application to UK Pensions and benefits.

Class 1 National Insurance Contributions are paid by employees who pay their tax via the PAYE system, the employer also makes a contribution as well, but these contributions count for the basic state pension which is currently about £100.00 per week.

They also contribute towards the 2nd state pension scheme, which was the old SERPS (State Earnings Related Pension Scheme), the 2nd state pension top up is based on the number of contributions made throughout the life of the claimant, the number of qualifying years is set to drop to 30, rather than the current 40 out of 45 working years.

Class 2 – Contributions are paid by the self employed, the rate is much lower at £2.20 per week, they are mandatory and are normally paid monthly or quarterly.

These contributions qualify for the State basic pension but do not qualify for the 2nd state pension scheme, no entitlement accrues on this scheme.

Class 3 contributions are voluntary, these can be paid by those who do not have sufficient qualifying years, they are currently £7.80 per week, this can bump up the state entitlement, and applicants should consult the Pensions service in Newcastle about their future entitlement and pension forecast.

Class 4 contributions are in fact a stealth tax, these have nothing to do with pension benefits, it was introduced by the government to tax the self employed on thier profits, there is a lower limit and upper limit and which these are assessed, the tax is 8 per cent of your profit per tax year, they do not contribute towards the state basic pension scheme, again as I said, they are a back door tax.

Does UK Government have an agreement with the Philippines

The answer is yes they do ! there is a social security treaty between the two governments set up in 1978, and there is also a double taxation treaty with the Republic of Philippines.

If you wish to have your UK pensions paid overseas, you can do this by contacting:

The Pension Centre
Tyneview Park
Newcastle upon Tyne
NE98 1BA
Telephone: 0191 218 7777.

If I wish to retire early than the state retirement age, can I contribute to my basic state pension until age 65 ?

The answer is yes, you may continue to make Class 3 voluntary contributions into your pension National Insurance record, and the DWP has a very good boolet here online you can read its at Social Security Abroad

The beauty is, you can have your state retirement pension paid to you in the Philippines, and with the double taxation agreement treaty signed with the Philippines, there are lots of ways you can enjoy your retirement without being hit for tax in 2 countries, the taxation agreement simply stops you paying tax on your pensions and investments in 1 country whilst being liable in another.

The other factor to take into consideration, is that you can apply to HMRC and have your voluntary contributions paid aborad, i.e. into the Philippine system, this will still entitle you to certain benefits, the book is quite explanatory, its a pdf document.

Can I get a forecast of what my pension will likely to be when I retire to the Philippines ?

Yes you can !, the pension service here at Pensions Forecasts will be able to give you an updated forecast based on your age, and NI Record.

So there are many things to think about, at current pension rates, a couple claiming a state pension, in their own right as individual contributors, may find they get around P20,000 a week to live on, couple that with future index linked increases, they should be able to live fairly well in the Philippines, I hope you have enjoyed this article.