An NT (no tax) code is granted to individuals who receive UK-sourced income and reside in a country that has a double taxation agreement with the UK. Within a UK pension, including a SIPP, your gross pension is subject to PAYE income tax unless you personally apply to HM Revenue & Customs (HMRC) for exemption on the grounds that you are non‐resident. This will allow you to avoid tax being deducted at the source when payments are made to the recipient which in turn would remove the burden of claiming the tax back each year through a UK tax return.
How do I apply for an NT code?
Should you wish to apply for exemption, you should contact HMRC for advice on the telephone number listed below:
- Telephone number: 0300 200 3300
- Telephone number (Overseas): 00 44 135 535 9022
They will be able to confirm the correct form(s) you need to complete for your specific country of residence or go to the following link:
https://www.gov.uk/tax-uk-income-live-abroad/taxed-twice
What do I do once I have been granted an NT code?
If an exemption is granted, HMRC should provide your pension trustee with the appropriate written authorisation to amend your tax coding, although we will strongly advise double-checking this with HMRC directly before making a future withdrawal if you wish to receive the income gross of UK income tax. Thereafter your pension payments will be made without deduction of UK income tax. You must have received an income payment from your pension first to register you to HMRC as being on the pension scheme’s Payroll which SJB Global are able to help with.
What happens next?
Your pension trustee can therefore pay a nominal payment to you to register you as being on your pension schemes payroll and then make future payment(s) to you on receipt of the applicable tax code from HMRC. The first Income payment under Flexi‐Access under PAYE rules is taxed on a 0T month 1 tax code, also known as the emergency tax rate.
Please note, that it is not unusual for completion of the exemption procedure to take up to eight months. Until the NT code is received by your pension scheme from HMRC, it is prudent to limit any drawdown income to £1k maximum to avoid any income tax being deducted as they will most likely be under a 1250L Mth 1 code which entitles you to 1/12 of the UK personal allowance (£12,500 in 2020/21). Please note, if you are receiving other UK-sourced income, this might put you into a higher tax code.
What do I do if I have been overcharged by HMRC?
Any overpayment of income tax, however, will eventually be refunded to you in one of the following ways:
- through the payroll (subject to receipt of HMRC authorisation within the same UK tax year as the tax has been deducted); or
- directly to you by HMRC. (contact details list below)
In most cases, unless you are in receipt of certain UK-sourced income and have a P45 dated within 12 months, you would require an income payment to be made before you can begin this process. Withdrawals from a pension can be very complex as drawdown options can differ between pension types which can also vary the way they are treated for tax purposes in different countries. We can provide you with an overview of your pension to firstly understand if an NT tax code is available and secondly, if your pension arrangements are in the correct structure before you begin the process.
