Taxation of withdrawals made by a Greek tax resident from a Self-Invested Personal Pension (SIPP) in the United Kingdom

Taxation of withdrawals made by a Greek tax resident from a Self-Invested Personal Pension (SIPP) in the United Kingdom

According to Articles 12(1) and (3), 14(1) and 15(4a) and (4b) of the Greek Income Tax Code:

Gross income from employment and pensions includes all types of income in cash or in kind acquired in the context of an existing, past or future employment relationship.

The following are considered gross income from pensions:

• pensions granted by the main and supplementary compulsory insurance institutions, as well as by professional funds established by law, and
• insurance paid as a lump sum or in the form of periodic benefits under group pension insurance contracts
• any other benefit received in respect of a past employment relationship.

 

Taxable income from pensions is subject to tax according to the following scale:

Income (€)	Tax                  rate (%)
0-10,000	9
10,001-20,000	22
20,001-30,000	28
30,001-40,000	36
40,001	44

However, insurance premiums paid under group pension insurance contracts are taxed separately as follows:

• For insurance premiums corresponding to up to five (5) years of insurance, at a rate of 10% if paid in the form of periodic benefits and at a rate of 20% if paid as a lump sum.
• For insurance premiums corresponding to more than five (5) and up to ten (10) years of insurance, at a rate of 7.5% if paid in the form of periodic benefits and at a rate of 15% if paid as a lump sum.
• For insurance corresponding to more than ten (10) and up to twenty (20) years of insurance, with a rate of 5% if paid in the form of a periodic benefit and with a rate of 10% if paid as a lump sum.
• For insurance corresponding to more than twenty (20) years of insurance, at a rate of 2.5% if paid in the form of a periodic benefit and at a rate of 5% if paid as a lump sum.

 

The rates in the above cases are increased by 50% if the beneficiary receives an early redemption amount.

 

The following payments are not considered early redemption:

• is made to an employee who has established pension rights or has exceeded the age of sixty (60), or
• is made without the employee’s consent, as in the case of dismissal of the employee or bankruptcy of the employer, or
• is made due to the employee’s participation in a voluntary redundancy scheme.

 

 

Therefore, in accordance with the above, at the time of termination of a voluntary insurance pension scheme, i.e. when the taxpayer receives a lump sum payment from the insurance company, it will be taxed separately and not according to the above scale provided for pensions granted by the main and supplementary compulsory insurance institutions.

 

Furthermore, according to Article X of the Greece-United Kingdom Social Security Agreement, the following is provided for:

 

1. Any pension and any annual benefit derived from sources within the United Kingdom and received by a person who is a resident of Greece and subject to Greek tax on it shall be exempt from United Kingdom tax.
2. The term “annual benefit” means a fixed amount paid at regular intervals, for life or for a specified or determinable period, on the basis of an obligation to pay such amounts in return for adequate and full consideration in money or money’s worth.

 

According to the above article of the SADF, any pension and any annual benefit falling within the above definition, provided that they originate from a source in the UK and the recipient is a resident of Greece, may be exempt from taxation in the UK, provided that it is taxed in Greece. Consequently, the DTA covers pensions and periodic benefit payments, but does not expressly state that it covers lump sums. The question therefore arises as to whether lump sums can be included in the meaning of the term ‘any pension’.

 

Regarding the meaning of the term “pension and other similar payments” as provided for in Article 18 of the OECD Model Tax Convention on Income and Capital, the OECD MTC Commentary states, inter alia, the following:

 

• Various payments may be made to an employee after he has ceased to work. Whether these payments fall within the scope of the Article will depend on their nature, in conjunction with the facts and circumstances surrounding their payment.
• The term “pensions” in its usual sense covers only periodic payments, but the phrase “other similar payments” is broad enough to cover non-periodic payments as well. For example, a lump sum payment in lieu of periodic pension payments made upon or after the termination of employment may fall within the scope of Article
• The source of the payment is an important factor; payments made by a pension scheme are generally covered by the Article.
• Other factors that could be taken into account in determining whether a payment or series of payments falls within the scope of the Article include, among others: whether a payment is made on or after the cessation of employment from which the remuneration arises, whether the recipient continues to work, whether the recipient has reached the normal retirement age for that type of employment, the status of other recipients who are entitled to the same type of lump sum payment, and whether the recipient is also eligible for other pension benefits.

 

It should be noted that Article XIV of the Greece-United Kingdom SAA does not follow the wording of the OECD Model Convention exactly (as it is one of the oldest SAAs in force) and refers, in addition to periodic payments, to “any pension” – and not to “pensions and other similar payments”. However, the above Interpretative Notes provide useful guidelines on the interpretation of the broader concept of pension and the parameters to be taken into account.

 

Consequently, although in its usual sense the term pension covers periodic payments, it is recognised that in certain cases lump sums may be classified as pensions in the broad sense, without this implying that all lump sums are automatically covered by the concept of pension.lump sums) may be classified as pensions in the broad sense, without this implying that all lump-sum payments are universally or automatically covered by the concept of pension, since, as is clear from the interpretative comments, this depends on many parameters related to the facts of each case and the specific characteristics of the pension schemes and payments.

 

In view of the above, we note the following:

• In principle, Greek legislation or relevant interpretative Circulars/decisions of the Tax Authority as to whether withdrawals (whether lump sum or periodic) from a private SIPP pension scheme fall within the concept of a pension under Greek law.
• In order for such a classification under the concept of pension to be made, the specific characteristics of each case must be sought and examined on a case-by-case basis.
• In this case (and in the absence of a specific definition of the term ‘(any) pension’ under the Greece-UK Social Security Agreement), the meaning of the term is derived from the domestic law of the State applying the Agreement. Based on the definition of pension in Greek law, and given that this is clearly not a case of a main/supplementary pension under compulsory insurance or a pension from a professional fund established by law or insurance paid as a lump sum or in the form of periodic benefits under group pension insurance contracts, it could fall under the category of ‘any other benefit received in respect of […], past, […] employment‘.
• In this context, the fact that:
  • the SIPP in question is a personal pension account
  • it has been funded exclusively by employer contributions – and is therefore linked to a past employment relationship (and this can be adequately demonstrated)
  • and provided that withdrawals will be made after reaching retirement age and not earlier

 

then we consider that the nature of the scheme goes beyond that of a private investment scheme and resembles a pension scheme, the payments/withdrawals from which may fall within the concept of a pension under Greek law.

 

• Although the tax treatment of withdrawals from SIPP is not explicitly regulated, we consider that their taxation as a pension will fall, as a foreign pension, under the general pension tax scale, as mentioned above, and not separately at the rates that apply specifically to insurance from group pension insurance contracts.
• Furthermore, withdrawals from the SIPP private pension scheme in the form of periodic payments (“annuities”), provided that you, as the recipient, are a resident of Greece and these are taxed in Greece, will be exempt from taxation in the United Kingdom, given that the term “annual benefits” is explicitly mentioned in the relevant DTA.
• As regards lump sums, since there is no explicit reference to them in the DTA, they are examined in the light of the general concept of ‘any pension’ in the DTA, for which we refer by extension to domestic law, which does not exclude from the meaning of the term ‘pension’ an amount that otherwise meets the conceptual characteristics of a pension, solely because it is a lump sum. In fact, lump-sum payments under group pension insurance policies explicitly fall within the concept of a pension. Consequently, we consider that the lump sum payment from the SIPP will also fall, as a foreign pension, within the general pension tax scale, as mentioned above, and should be exempt from tax in the UK (if applicable).
• In any case, if tax is imposed in the United Kingdom, a tax credit is provided for under the provisions of the DTA and domestic law, as explained above (under 2), in order to avoid double taxation.

 

 

 

* The information is accurate to the best of our knowledge as at the time of writing. We have no obligation to update it. We accept no responsibility against any third party who is not a client of the firm and has not signed the terms of our engagement.