UK Chancellor George Osborne (pic UK Foreign and Commonwealth Office)

The UK Chancellor George Osborne announced in his latest 2012 budget that he is phasing out the “age-related allowance”. This was an additional income tax allowance based on age and meant that UK pensioners had a higher level of tax free allowance than workers.

The age allowance will be phased out by 2013/14 for all but those born before 6th April 1938. The measure, which was instantly labelled a “granny tax”, will hit up to five million older people, among them some Irish resident pensioners who are in receipt of UK pensions.

There are a significant number of people in the Republic of Ireland in receipt of UK pensions. If you are among them it is important to ensure that you are paying tax in the correct country.

The UK state pension and other non-government pensions paid in consideration for past employment are exempt from UK income tax for those resident in Ireland. However Irish income tax should be paid on these pensions.

UK government pensions, for example Department of Education pensions, are slightly different. No UK income tax will be payable on UK government pensions if the person receiving the pension is Irish resident and a “national of Ireland” for the relevant tax year. The tax treaty defines a national of Ireland is defined as a citizen of Ireland.

Non Irish nationals resident in Ireland and in receipt of UK government pensions, are liable to UK income tax on that pension. If your pension falls into this category you are likely to be impacted by the changes announced in the UK budget.

If you are in receipt of a UK pension and have paid UK income tax in error, you could be entitled to a refund. Refunds can be claimed for the tax paid in the UK in the past 5 years, and arrangements can be made with the UK Revenue to avoid deduction of tax at source from future pension payments. However, in these circumstances Irish income tax returns will need to be filed and any Irish income tax due paid.

Given the various tax reliefs and credits available in Ireland it could well be that the tax liability in Ireland will be less than the UK income tax. The tax position in each country will depend on your individual personal circumstances.

By ensuring your tax is paid in the right country you will have the comfort of knowing that your tax affairs are in order and it could result in a net tax refund.

For more information contact MLMG (McLaughlin McGonigle), St Helens, St Orans Road Buncrana, Co. Donegal. Tel +353 (0)74 9321420 or email: