Income from Poland - declare your Polish pension in the UK!
Our client, Maria, approached us for help. She intended to sell an apartment in Poland and therefore wanted us to calculate any potential Capital Gains Tax (CGT) that, as she knew, needed to be paid in the UK.
To correctly process a tax return, we always need to know more about the client – the circumstances of the tax liability alone are not enough. As with all our clients, we therefore asked Ms. Maria about her life situation. During our discussions, it turned out that Ms. Maria was receiving a pension from Poland and was unaware that she should also declare it in the UK.
Declaring income from Poland
Ms. Maria has been living in the UK continuously for several years and is a tax resident there. Therefore, her pension income earned in Poland should have been taxed in the UK, just like all her other income. This is stipulated in Article 17 of the Double Taxation Agreement.
Double Taxation Agreement between Poland and the UK
The UK and Poland have signed a Double Taxation Agreement, also known as DTA, which was drafted based on the international multilateral convention called the Multilateral Instrument (MLI), which can be found [SEG 8] here .The MLI is a collection of legal provisions from which contracting countries select specific points and apply them as binding regulations between them. They then sign an agreement incorporating these points and implement mandatory changes to their respective codes.
Our article on the DTA can be read
here .Under the Double Taxation Agreement, as a tax resident in the UK, you can deduct tax already paid in Poland.
This also works the other way around – a Polish tax resident can, under the DTA, deduct tax paid in the UK from what they owe in Poland.
This means that the taxpayer only pays tax once.
Tax Disclosure, or income disclosure
Ms. Maria should have been declaring her pension payments in the UK for several years. In such a situation, a tax settlement is made in the form of a Disclosure to the British tax authority.
Disclosure, or income disclosure, means that the taxpayer informs the authority of their error, provides HMRC with all necessary assistance in calculating the unpaid tax, and allows officials to review all documentation they possess. The official then considers the time in which they received the information from us, and the nature and extent of cooperation offered by the taxpayer.
This type of conduct is highly desirable, both for the official – as it allows them to resolve the matter quickly and without needing to ask further questions – and for us, as tax advisors and accountants, because it enables us to refer to relevant points of tax law to reduce the amount of penalties.
We have already written about Tax Disclosure on our blog. An article on this topic can be found here.
Our cooperation with Ms. Maria therefore proved to be very fruitful: not only did we help her resolve the issue she came to us with, but an additional problem was identified and successfully resolved, one our client was unaware of and which could have become a truly serious issue over time.
