# Switching from old NHR regime to new one?



## geological (Jan 18, 2019)

Further to an earlier thread I started, I am now convinced that I (and everybody else in similar circumstances) should declare and pay UK tax on my UK state pension, despite being tax resident in Portugal (with NHR status -original regime). This begs the question as to whether it is possible to switch to the new NHR regime as this would be advantageous to me. I would pay 10% in Portugal as opposed to 20% in the UK. Does anyone know whether this is possible? Has anyone actually succeeded?


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## RichardHenshall (Jul 26, 2009)

As far as I'm aware there is no direct link between your state pension being paid after deductions prompted by a tax code and that pension actually being taxed by the UK.

PAYE is HMRC's preferred method of collection of tax towards the expected annual tax bill, such as income from property etc. They deduct from the pension because they can. Your tax return and the computation associated with it will demonstrate whether the pension has actually been taxed by the UK.

The new NHR scheme rates don't change which country has taxation rights, just the rate paid in Portugal. However I'm sure you can pay more if you wish.


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## geological (Jan 18, 2019)

RichardHenshall said:


> ....
> PAYE is HMRC's preferred method of collection of tax towards the expected annual tax bill, such as income from property etc. They deduct from the pension because they can. Your tax return and the computation associated with it will demonstrate whether the pension has actually been taxed by the UK.
> 
> The new NHR scheme rates don't change which country has taxation rights, just the rate paid in Portugal. However I'm sure you can pay more if you wish.


1. As far as I can tell if I tell my UK accountant to include my UK pension in my self-assessment for 2019/20 even though it was paid to me in the part of the year when I was PT tax-resident this will result in tax being paid. The same will happen in 2020/21. 

2. Under the UK Portugal Double Taxation Treaty the UK state pension is not expressly mentioned but in such cases it is regarded as other income and the UK can tax that if it is not subject to tax in PT. Subject to tax according to the HMRC manual more or less means tax is paid. So under the new NHR regime the UK state pension is exempt from UK tax but under the old regime it is not.

Hence my question about whether it is possible to switch.


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## RichardHenshall (Jul 26, 2009)

UK State Pension is subject to tax in Portugal if paid to a resident of Portugal. If that resident has NHR then it is taxed at 0% or 10%. The income is included in determining that resident's marginal rate of tax on other income streams.

I fail to understand why you declare this income in the UK when it's subject to tax in Portugal because of your residency there. Have you told HMRC you are now resident in Portugal?


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## geological (Jan 18, 2019)

RichardHenshall said:


> UK State Pension is subject to tax in Portugal if paid to a resident of Portugal. If that resident has NHR then it is taxed at 0% or 10%. ....
> 
> I fail to understand why you declare this income in the UK when it's subject to tax in Portugal because of your residency there. Have you told HMRC you are now resident in Portugal?


1.I think your definition of 'subject to tax' is out of keeping with that of HMRC. This is:'The expression “subject to tax” usually means that the person must actually pay tax on the income in their country of residence.' (INTM 332212)

2. So under the old NHR regime it is not subject to tax in Portugal and according to the double taxation treaty it is taxable in UK. I am in the process of compiling the DT individual form which needs certifying by the AT. This form requires me to state the exemptions that I am making use of and the legislation governing them. I am therefore trying to find out which regime I will be under (in other words whether I should quite the legislation for the new regime as I might be switching to it).

This is important to me (and many others?) so I appreciate you engaging, even though we are miles apart at the moment.


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## RichardHenshall (Jul 26, 2009)

From https://www.gov.uk/hmrc-internal-manuals/international-manual/intm162090:

Examples of where the income is regarded as ‘subject to tax’ but on which no or little tax is actually paid may include the following:

1. The customer does not pay any [...] tax because their income is covered by personal allowances and reliefs.​
Isn't NHR a form of allowance or relief?


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## geological (Jan 18, 2019)

RichardHenshall said:


> From https://www.gov.uk/hmrc-internal-manuals/international-manual/intm162090:
> 
> Examples of where the income is regarded as ‘subject to tax’ but on which no or little tax is actually paid may include the following:
> 
> ...


No. It is miles away from that sort of thing. It is covered much better by (quoting from same HMRC source as I did before):
'A person is not regarded as “subject to tax” if the income in question is exempted from tax because the law of the other country provides for statutory exemption from tax.'


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## Pgmills (Jan 19, 2015)

There is no exemption. The rate is simply 0%.


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## Pgmills (Jan 19, 2015)

A great example of the point is the difference between zero rated items for vat in the UK and exempt items. If you sell zero rated items you may claim input vat as a refund. If you sell exempt items then you will either have a partial exemption to reduction on your input tax or no input tax recovery at all.


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## geological (Jan 18, 2019)

Pgmills said:


> A great example of the point is the difference between zero rated items for vat in the UK and exempt items. If you sell zero rated items you may claim input vat as a refund. If you sell exempt items then you will either have a partial exemption to reduction on your input tax or no input tax recovery at all.


Not sure this works. But if there was a parallel between the two taxes then according to you the AT should pay us for our groceries etc if we give our NiFs should it not?


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## Pgmills (Jan 19, 2015)

Not sure I can understand what you are saying. 
I was highlighting how the UK treats the difference between exempt and zero rated taxable items. Your OP asserted that HMRC would treat Income dealt with at a zero % rate of tax as being untaxed, I sought to show that that may not be (IMHO is not) the case.


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## geological (Jan 18, 2019)

You used the VAT system to illustrate in practical terms the difference between a zero rate and exemption. Essentially, your point seemed to me to be that zero rating allowed deduction of input tax. 

I was making two points. The first was it is difficult to read across from one sort of tax to another. The second was that if there was a parallel between VAT and Portuguese income tax it was due to both allowing deductions in respect of ‘inputs’. In the case of income tax this works through recording expenditures via the NIF system. My semi-humorous point is, effectively, that if you want to demonstrate that NHR tax-residents are zero-rated rather than exempt you could do so by showing how the AT pays us for our purchases recorded through the NIF system. 

Beyond this, I cannot find any references to zero rating in the NHR legislation/ documentation, just to exemption. Also, the HMRC handbook defines ‘subject to tax’ in terms of tax being paid or would have been paid if the income was large enough. Surely that is enough?


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