Pension Lump Sum Payment from the UK

[ricardo]

I have the option of taking a lump-sum payment of around ¥15 million from a UK-based pension scheme. Under UK legislation it is paid to me free of UK income tax. I want to use it to pay off my Japanese home loan. I am a permanent resident of Japan for tax and other purposes. How will this payment be treated by the NRA?

[RetireJapan]

I have the option of taking a lump-sum payment of around ¥15 million from a UK-based pension scheme. Under UK legislation it is paid to me free of UK income tax. I want to use it to pay off my Japanese home loan. I am a permanent resident of Japan for tax and other purposes. How will this payment be treated by the NRA?

I suspect it will be treated as ordinary income. Anyone know different? The easiest thing would be to ask the tax office, on a what-if basis.

[jcc]

The UK has a pension agreement with Japan. Are you sure it's in your best interest to cash out and try to transfer it to Japan? You may want to ask around

http://www.nenkin.go.jp/international/e ... tries.html

[ricardo]

I’m not cashing out. I’m retiring and taking a cash free lump sum which I want to use to eliminate a mortgage.

(The Japan-UK Pension deal is for state pension entitlements and eliminates dual coverage. my situation refers to a payment from a company scheme).

[jcc]

Makes sense then! I can't say how the payment would be treated, but regular income seems likely. It may be prudent to transfer it to japan in several yearly installments to minimize the tax burden, though this really seems like something to consult a professional on

[goodandbadjapan]

Makes sense then! I can't say how the payment would be treated, but regular income seems likely. It may be prudent to transfer it to japan in several yearly installments to minimize the tax burden, though this really seems like something to consult a professional on

If he takes a lump sum in the UK (and if it is treated in Japan as income) I don't think transferring in instalments would make any difference to tax. The tax due to Japan on income is due wherever the money is, so if he already has that sum in the UK, then the tax will be due. Perhaps staggering the payment from the pension provider might help if it is done across different tax years in Japan (I really don't know) but that seems to be going against the original plan to pay off the house.

[ricardo]

The payment can not be staggered. It is a one-off tax free lump sum under UK legislation. Whatever I use it for, I still get it.

I’m aware that in Japan retirement lump-sum payments are tax free within limits (based on length of service) so the question is whether this allowance can be applied to an overseas pension payment. (It may be hard to explain/show/translate the UK paperwork to prove it came from a pension provider and not some other source).

This must be a relatively common issue for UK expats in Japan when they take UK retirement benefits.

Here’s another question/thought. How do the NRA convert the amount of GBP (if I left some of it in the UK - I might not need it all to pay off the mortgage so could leave it in a UK bank account to earn interest) to JPY for taxation in Japan purposes? Do they have an official exchange rate on every day of the year or do they leave you do decide how much your foreign funds are worth? This is presumably a issue many readers face with funds they receive/hold in non-JPY.

[goodandbadjapan]

Here’s another question/thought. How do the NRA convert the amount of GBP (if I left some of it in the UK - I might not need it all to pay off the mortgage so could leave it in a UK bank account to earn interest) to JPY for taxation in Japan purposes? Do they have an official exchange rate on every day of the year or do they leave you do decide how much your foreign funds are worth? This is presumably a issue many readers face with funds they receive/hold in non-JPY.

I've always just used the official exchange rates on https://www.xe.com for money received in the UK. You can check historical exchange rates there, too. It's worked so far, but I'm not sure if there is a better, more 'correct' way.

[ricardo]

Interesting. Those rates are consumer market rates - do you use the mid-price or the JPY ‘buy’ price?

Both the overall price and spread are very different from money market rates and could make a significant difference to the tax calculation. That’s why I expected there would be an ‘official’ NTA rate but I’ve never read about this anywhere, including their website.

[goodandbadjapan]

I just use the price shown on that page. It does say this though:

All figures are based on live mid-market rates. These rates are not available to consumer clients.


To be honest, the money I receive in the UK is relatively small and it likely doesn't make a huge difference in my case.