Overseas Pensions (Hansard, 30 April 1970)

§ Mrs. Hart:

There will be two stages in the implementation of the possible new arrangements. In the first stage the pensions will continue to be paid to the individual pensioners by the overseas Governments and the part of Her Majesty's Government will be limited to reimbursing the overseas Governments, if they reach an agreement with us, the cost of that part of the pensions which relates to pre-independence service. Nothing in this first stage would cause any change in present arrangements for the taxation of pensioners and it was this that I had in mind in giving the hon. Member an assurance on 11th March.

The second stage will be the assumption by Her Majesty's Government of responsibility for paying the individual pensioners concerned direct. However, since the first stage will not begin in the case of any country until April of next year and legislation will be required before the second stage could be put into effect it is probable that payment of individual pensioners direct is two or three years away. The Government have always realised that more thought has to be given to the questions whether they assume this responsibility in any particular set of circumstances, and if so how. I have discussed with my right hon. Friend the Chancellor of the Exchequer the taxation consequences of the second stage coming into effect and I understand that the position in regard to income tax and surtax as the law stands would become as follows. The officers concerned would cease to be liable to taxation by the original awarding overseas country, except where the pensioner 391W was resident in that country, and like other pensioners paid from the public revenue of the United Kingdom would become subject to United Kingdom tax under Section 181(2) of the Income and Corporation Taxes Act, 1970.

So far as most United Kingdom residents were concerned— and the great majority of pensioners fall into this category— the tax paid would not normally be different in amount from the existing aggregate United Kingdom and overseas tax.

There are some pensioners resident here who at present arrange for the overseas Government to pay their pensions outside the United Kingdom and who do not subsequently remit any part of that money to this country: in this way they avoid liability to United Kingdom tax on their pensions. As and when Her Majesty's Government began to pay them directly their pensions would become chargeable to United Kingdom tax.

The pensions of certain other residents here are at present exempt from United Kingdom tax under the terms of a double taxation agreement. This exemption would not apply once the pensions ceased to be paid by the overseas awarding authorities. Non-resident pensioners would become liable to United Kingdom tax on their pensions unless they were residents of a country with which the United Kingdom has a double taxation agreement which provides otherwise.

The treatment of pensioners in the categories I have mentioned in the previous paragraph will naturally raise questions of principle and equity both within the overseas pensioners field and between overseas and other pensioners. In respect of some pensioners problems will arise as and when the second stage is reached. My right hon. Friend, the Chancellor of the Exchequer, is aware of these problems, and I can assure the hon. Member that at all stages in the working out of any new arrangements, including the preparation of the necessary enabling legislation, Her Majesty's Government will have full regard for the interests of the pensioners concerned.