Taxation of pensions in the UK: What Polish pensioners need to know.
Many Polish pensioners living in the UK have recently been receiving letters from HMRC regarding unpaid taxes. Concerned, they reach out to me for help because the letters mention penalties that taxpayers may face for not settling tax liabilities on this income in the UK. So, I decided to shed some light on this topic.
Is a Polish pension taxable in the UK?
Ms. Janina is a perfect example. She has been living in England since 2014, and a few years ago, after 35 years of working as a teacher, she started receiving her pension in Poland.
She contacted me to find out how to rectify her errors regarding unpaid taxes on this income. She had finally received a letter from HMRC, stating that they were aware of her foreign income and mentioning potential penalties. I'm getting more and more questions like this, and since Ms. Janina's pension, like many other retirees, isn't very high—just over PLN 3800 per month—and tax was already deducted in Poland, she wasn't aware of the rules she should follow for pension taxation.
Do you pay tax on pensions in the UK?
We can't blame people like Ms. Janina, because almost 100% of my senior clients are unaware of their obligations to the tax authorities. No one educates them.
Ms. Janina, like most, was convinced that since the Polish government had already deducted tax at source, she wouldn't have to pay tax in the UK. This is a very common mistake;
many people simply don't know where they should pay their taxes and believe that if they're paying tax in Poland, they don’t need to do so in the UK.
This seems logical. However, the law doesn't always operate on the principle of common sense.
Do I need to declare my Polish pension in the UK?
Generally, international law states that if you live in the UK and are a tax resident here, you must pay taxes in your country of residence on income earned worldwide.
During my consultation with Ms. Janina, we discussed various scenarios and strategies to minimize her tax burden. I advised her that, first and foremost, she should inform the Polish Tax Office that she is no longer a resident of Poland, so they can adjust her tax obligations to her current situation. Ms. Janina will likely need to present a certificate of tax residency to the Polish authorities.
How to declare a UK pension
We also discussed with Ms. Janina what international laws are, and on what basis, and in which country Ms. Janina should pay her taxes. In this situation, every pensioner residing in the UK should pay their taxes here, primarily due to agreements signed between the UK and Poland.
These agreements are structured to avoid penalizing individuals like Ms. Janina by requiring them to file taxes in multiple countries. Imagine if Ms. Janina had worked in Poland, Germany, and the UK, and then decided to live, say, in Spain during her retirement.
Do you think it would be fair for an elderly person to now search for tax advisors in all four of those countries just to file their taxes? That's a lot of hassle for someone who deserves to simply rest. That's why these agreements are designed to help pensioners, not penalize them.
So, the agreements exist, but what's missing is financial education.
I believe that when granting a pension, the tax office could include a single paragraph stating that if a person like Ms. Janina decides to live in another country, they will only pay tax in that country, and Poland will not collect it.
Just one paragraph in the pension award letter, and how many fewer problems for Ms. Janina, right?
We had to clarify all these issues from previous years with Ms. Janina. We also helped her with a potential tax refund in Poland by connecting her with our friendly accountant there. After the consultations, now educated and understanding all her rights and obligations, she left satisfied and free of any liabilities, with a clear conscience that she had done everything she should to rectify her situation without incurring exorbitant penalties from any tax office.
