The First-tier Tribunal (FTT) decision in the case of Mrs Eliane Haseldine (TC/2011/02619 published on 13 August 2012) saw a partial victory for the taxpayer in a somewhat unusual case.
Mrs Haseldine, a Swiss national had been resident in the UK for many years. Before coming to the UK in 1969 she had worked in France and Switzerland where mandatory contributions to the state pension funds of both countries were deducted from her gross salaries. Similarly, NIC contributions were deducted from her UK salary when she was employed in the UK.
In 2009 Mrs Haseldine started to receive her entitlements under her Swiss, French and UK pensions, all of which fell to be taxed in the UK. This would have been relatively straight forward except that in the period May 1995 to June 2009 she had also made voluntary contributions to the Swiss state pension scheme out her UK post tax earnings.
The problems arose when Mrs Haseldine completed her UK tax return for 2008/09 and claimed a deduction for all the contributions to the Swiss scheme against her income for that year. She made the claim under the heading “payments to an overseas pension scheme which are eligible for tax relief and were not deducted from your pay”. HMRC opened an enquiry into the return and subsequently refused the relief. Mrs Haseldine appealed to the FTT.
Among her arguments, Mrs Haseldine placed reliance on the UK/Swiss double tax treaty particularly article 18(3) which allows for tax relief on contributions made to qualifying pension schemes in the other country. However, article 18(4)(c) requires that the pension scheme in question must be recognised for tax purposes by the appropriate authorities as a bona fide pension scheme. This effectively means that for relief to be given HMRC would have to recognise the Swiss state scheme as a pension scheme similar to private schemes.
The Tribunal were clear that HMRC were right to not recognise state schemes as like a private pension schemes for this purpose, comparing Mrs Haseldine’s Swiss contributions with voluntary contributions made here in the UK through NIC Class 3. Further they pointed out that even if the contributions did qualify under the treaty as eligible for relief, that relief must be claimed in the year of payment of each contribution and not as a single claim in a particular year for many years’ contributions.
The Tribunal also found that the Swiss pension was taxable here in the UK on the basis that the treaty so provided for the UK to have primary taxing rights thereon as Mrs Haseldine was resident in the UK. Again this was counter to Mrs Haseldine’s claim that if she could not obtain relief for the contributions, the income should also not be taxable. The Tribunal found that the legislation had no such principle of symmetry that allowed them to support such an argument.
The Tribunal however did grant a degree of relief to Mrs Haseldine – even though she had made no claim for it – in that section 573 ITEPA 2003 was held to be in point. Section 573 relates to receipts from overseas pension schemes and where applicable provides that only 90% of the income is liable to tax in the UK. In this case Mrs Haseldine’s Swiss pension could be reduced by 10% before being subject to UK taxation.
What is apparent from this case is that the tax treatment of overseas pensions and the contributions to them varies markedly, particularly where tax treaties are in point. Further state pension schemes are not regarded by HMRC as qualifying overseas pension schemes and therefore taxpayers should take care when topping up on a voluntary basis into state schemes. However the benefits from such schemes may be eligible for a 10% reduction in the assessable amount.