Squabble over settlements puts British olim in a tax jam

An unknown number of British pensioners living in Israel have to continue to pay taxes on their UK pensions because of an ongoing diplomatic feud.

February 18, 2011 03:56
2 minute read.
The British Parliament building.

british parliament 311. (photo credit: AP)

When Paul Weiser made aliya from London last March and tried to take advantage of the tax breaks on foreign-source income offered to all olim, he was in for a surprise.

Weiser discovered he was required to continue paying taxes on his pension in the UK not despite, but because he was exempt in Israel.

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“The [British] Inland Revenue said you cannot be exempt in both places,” the 77-year-old retired businessman told The Jerusalem Post on Thursday. “I don’t mind so much for myself. I get by, but there are many people who rely on their pensions.”

There are an unknown number of British pensioners living in Israel who, like Weiser in Herzliya, have to continue to pay taxes on their pensions in the UK because of an ongoing diplomatic feud between Jerusalem and Whitehall over the status of the West Bank and the Golan Heights.

Many countries including Israel and the UK have double tax treaties that prevent overseas residents from having to pay taxes twice on the same income.

Under article 11 of the Israeli-British tax treaty, British residents in Israel are exempt from paying taxes in the UK on condition that they are subject to taxation here. However, an Israeli law that came into effect in 2007 exempting olim from taxation on foreign income inadvertently left Weiser and other British pensioners here in a bind: Because they don’t pay any taxes on their pensions in Israel, they cannot not ask for an exemption in the UK.

The Israel Tax Authority told the Post a new treaty signed by Israel and the UK in April 2009 would exempt British residents in Israel from paying taxes on their pensions even if they weren’t subject to local taxes. However, the treaty has not yet been ratified by either country, the Tax Authority said.

The British, however, said no such treaty exists.

“A new Double Tax Agreement was not signed in 2009,” a representative of the British Embassy said. “A new agreement is still under discussion and has not been finalized or signed.”

The ongoing logjam, according to a British Embassy representative, is related to the political status of east Jerusalem, the West Bank and the Golan Heights.

“The Israeli government wants Israeli settlers to be included in the new DTA [Double Tax Agreement],” the representative said. “The UK’s long-standing position is that settlements in the occupied territories are illegal.”

An Tax Authority official told the Post that British pensioners can elect to pay taxes on their pensions in Israel instead of the UK, at a level that will not be higher than that in Britain.

He added, however, that until a new tax treaty is agreed upon between Jerusalem and London, Weiser and other British olim will have to pay tax on their pensions, either in the UK or in Israel.

“Neither side wants to give in,” Weiser said. “But they’re going to come to some sort of modus vivendi because in the meantime we are suffering.”

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