Your Taxes: New UK-Israel tax treaty: Is this for real?

The new draft has only been initialed and still needs ministerial and parliamentary approval.

By LEON HARRIS
taxes good 88 (photo credit: )
taxes good 88
(photo credit: )
This article is for olim from the UK and any other Israeli residents who receive UK pensions. On April 6, the Finance Ministry announced it had just signed a new tax treaty with the United Kingdom. The announcement proclaimed that the British government has undertaken for the first time not to impose tax on pension recipients who are new olim from Britain as reported in The Jerusalem Post on April 7. Many readers in Britain and Israel saw this and asked: Is this for real? The answer is: Not yet. The new UK-Israel tax treaty draft has only been initialed - it still needs ministerial and parliamentary approval in both countries and probably won't be in effect before 2010 or 2011. Under Israeli tax law, new residents who arrived from 2007 onwards are exempt from tax on foreign source income, including most UK pensions, for 10 years. So are returning residents who lived abroad five years or more, if they return to Israel in 2007-9. Other immigrants enjoy a five-year exemption on most UK pensions. But the present UK-Israel tax treaty allows the UK to tax British pensions paid to Israeli residents if Israel doesn't. The proposed pension clause in the new treaty draft will apparently only allow the country of residence to tax pensions. So an oleh who receives a British pension may become exempt from tax in both countries in his first 10 years of residence in Israel if the treaty becomes effective, unlike now. Offshore pensions and bonds will not apparently qualify for this relief - not even Qualified Recognized Overseas Pension Schemes (QROPs). To sum up, the tax on UK pensions has not changed yet, and the lack of attention to offshore pension and retirement schemes is a shame. The changes, when they occur, will not be restricted to English olim - Scottish, Welsh and Northern Irish olim will also benefit! As always, consult experienced professional advisers in each country at an early stage in specific cases. leonharr@gmail.com The author is an international tax specialist.