May 16, 2024

How Non-UK Residents Can Apply for an NT Tax Code: A Guide on Efficient Pension Planning

How Non-UK Residents Can Apply for an NT Tax Code: A Guide on Efficient Pension Planning

What is the NT Tax Code?

Applying for an NT Tax code is a crucial step for anyone living in Malaysia with UK-sourced income, including British expats. An NT(No Tax) tax code is issued by HM Revenue & Customs (HMRC) to non-UK residents who receive UK-sourced income but live in a country that has a double taxation agreement with the U.K., such as Malaysia. This code exempts individuals from U.K. income taxwithholding, allowing them to receive their income without U.K. income tax deductions.

Steps to Apply for an NT Code

1. Application for NT Code: Begin by contacting HMRC for guidance and to obtain the necessary forms. They will advise on the requirements based on your residency.

2. Receive Authorisation: Upon approval, HMRC will send written authorisation to your pension trustee to adjust your tax code.

3. Adjust Your Tax Coding: Once the NT code is received from HMRC, the pension payments can be made to the individual without the deduction of U.K. income tax. The pension trustee may need to make adjustments to the individual's tax code as instructed by HMRC.

Timing and Considerations

  • Process Duration: Obtaining an NT code can take several months. It's advisable to limit drawdown income to avoid overpaying tax until the NT code is received.
  • Refunds for Overpayments: Overpaid income tax will be refunded by HMRC, either through payroll or directly.
  • Complexities in Withdrawals: Withdrawals from a pension can be complex, especially concerning drawdown options and tax treatment across different pension types and countries. It's essential to understand the structure of the pension arrangements and the availability of an NT tax code before beginning the drawdown process.

It's important to note that the process described above is specific to individuals who receive UK-sourced income and reside in countries with double taxation agreements with the U.K. (such as Malaysia). Additionally, this information provided is not intended as investment advice but rather as a guide to the tax implications of pension withdrawals in this context.

What Happens Next?

After your pension trustee registers you on your pension scheme's payroll and receives the applicable tax code from HMRC, they can proceed to make future payments to you accordingly. However, until the NT code is received by your pension scheme from HMRC, it's wise to limit any drawdown income to £1,000 a month to avoid any income tax being deducted. This is to avoid surpassing the U.K.'s personal allowance which currently sits at £12,570 (2023/2024). It's important to note that if you're receiving other U.K. sourced income, this may also put you into a higher tax code.

If you've been overcharged by HMRC, any overpayment of income tax will eventually be refunded to you either through the payroll (subject to receipt of HMRC authorisation within the same U.K. tax year as the tax has been deducted) or directly by HMRC.

How we help with U.K. Pensions

Withdrawals from a pension can indeed be complex as drawdown options can differ between pension types, and the tax treatment can vary across different countries. Seeking advice and ensuring that your pension arrangements are structured correctly before beginning the process is crucial to avoid potential complications and ensure compliance with tax regulations.

If you're seeking to review your pensions, need assistance applying for an NT Tax code, or have any pension-related questions, our team is here to help.

Contact Us: For personalised pension planning services and tax advice, reach out to our Private Wealth Manager, Luke White at lukewhite@melbournecapitalgroup.com.
Let our expertise guide you through the complexities of pension management and tax planning.

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