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How is my UK pension taxed in Belgium ?

If you plan to retire in Belgium and you are entitled to one or more pensions from the UK, there are some important tax considerations to keep in mind. Retiring in Belgium can have significant tax benefits, but those building up UK state or occupational pensions need to be aware of the impact of Belgian taxes on their future income.

As a rule, Belgian tax residents are taxable in Belgium on their worldwide earnings, including their foreign pensions. Your becoming liable for taxation in Belgium does not mean that you will actually pay tax in Belgium on this foreign income. In a cross-border context, one first needs to look at the relevant double taxation agreement (DTA) to determine whether Belgium is authorized to tax the foreign pension income. Subsequently, Belgian domestic tax law is applied to determine the amount of tax due (if any).

Traditionally, pensions (and other similar types of remuneration) in consideration of past private employment are taxable in the beneficiary’s country of residence. If this person resides in Belgium after retirement, the UK pension is taxable in Belgium (and vice versa). However, in more recently negotiated tax treaties, the right to tax is often given to the source country instead, e.g. where the pension fund is established or the pension contributions were made. This is, for example, the case in the UK-BE tax treaty due to the Protocol that came into force in 2013.

Therefore, any pension paid out after 2012 from a UK source to a Belgian tax resident, remains fully taxable in the UK. Pensions first paid out before 2013 remain taxable in the beneficiary’s country of residence. On the other hand, government and civil service pensions, such as military pensions, are always taxed at source. The Belgian authorities often extend this reasoning to all types of state funded pensions, but this is not a correct treaty interpretation.

In case Belgium does have the right to tax your UK pension, and it is paid out as a monthly or periodical interest, it will be classified as (deferred) professional income and taxed at the standard progressive tax rates from 25% up to 50% (plus municipal surcharge). Any extra-legal pension that supplements the statutory pension can also be paid out as a capital lump-sum distribution with a tax rate as low as 10%. If you transfer the pension capital to a life-time annuity, you will be taxed annually at a rate of 0.9% of the surrendered capital.

If the pension is taxable in the UK according to the DTA, it will be exempt from taxation in Belgium under theso-called ‘progression rule’. That means you will not pay any Belgian tax on the UK pension, but it will increase the average tax rate applying to your other income taxable in Belgium. On top of this, a local (municipal) tax additionally applies at rates varying from 0% to 9%, depending on your municipality (‘commune’) in Belgium. 

TAXPATRIA® can assist you in determining the tax treatment of your UK pension(s) and help you better understand the tax consequences of your planned retirement in Belgium.

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