An NT (no tax) code is issued to individuals who receive income from the UK and live in a country that has a double taxation agreement with the UK.
In the case of a UK pension, including a Self-Invested Personal Pension (SIPP), your pension income is normally subject to PAYE income tax unless you personally apply to HM Revenue & Customs (HMRC) for exemption, asserting your non-resident status.
By obtaining this exemption, you can avoid tax deductions at the source when pension payments are made, eliminating the need to reclaim the tax each year through a UK tax return.
What happens if I don’t have an NT code?
If you don’t have an NT code, you will get taxed at source on UK pension income. This will most likely be at an “emergency” rate (for “emergency”, read “punitive”).
I.e. the institution paying your income is going to have to deduct UK tax before they remit funds to you.
While it’s not the end of the world – you should be able to claim the tax back through a UK tax return – it’s a hassle you don’t need and I’ve not met too many people who appreciated being emergency taxed at source.
Scenarios where an NT code may or may not be needed
A QROPS? No, you will not need an NT tax code to receive payments from your QROPS gross. However, you may still need an NT code if you have other UK pensions/income.
A personal pension or SIPP? Yes, you will need an NT code if you have a personal pension or SIPP and want to receive gross income while living in a country that has a DTA with the UK.
A defined benefit (final salary) pension? Yes, see above.
UK State Pension? Yes, although if this is the only income you have from the UK then you will be within the personal allowance band and shouldn’t have any UK tax applied.
How do I apply for an NT code?
Step 1 – use this link to download the relevant form.
Step 2 – As well as completing the form, you will also need to make an appointment at your local tax office, who will provide confirmation that you are tax resident there.
Step 3 – Send the completed form to HMRC.
Step 4 – HMRC processes the application and sends the NT code to the pension scheme administrator.
Be aware that in normal times, it would take HMRC up to 12 weeks to do this. In current COVID times, it is taking them even longer than that.
Step 5 – The pension scheme applies the NT tax code to future income payments, with no tax deducted at source. [I strongly advise double-checking with HMRC directly before making a withdrawal if you wish to receive the income gross of UK income tax.]
Warning
There have been cases of people who have gone to the trouble of getting an NT code and have passed them onto their trustee (or whoever is handling the payments) only for them to continue being emergency taxed.
I can only assume that some trustees are not familiar with NT codes (they probably do not work with many expats) and therefore do not understand how to correctly apply the code.
If anything, this underscores the importance of expats working with providers who do work with people like you and thus are familiar with some of these idiosyncrasies.
And finally…
Having an NT code doesn’t mean that you don’t pay tax at all. It just means that you don’t pay it twice (in the UK and in your country of residence).
It is still your responsibility to declare the income in the country that you are resident in and pay any taxes that are due there.
