Author: Jonty Aitken
A Case Study for South Africans Now Resident in the UK
For South Africans who have emigrated to the UK, one issue continues to catch even well-advised individuals off guard. Your pension or provident fund takes off tax from your pension before paying it to you and you naturally assume you cannot get this back.
The Scenario
A client of ours had relocated from South Africa to the UK. Some time after departure — once the applicable waiting period on their retirement fund had passed — a payment became due. The fund administrator applied to SARS for a tax directive, and SARS issued one that resulted in South African tax being deducted from the payment.
On the face of it, this looked like a routine, correctly processed transaction. It was not.
The Underlying Issue
South Africa and the UK are parties to a Double Taxation Agreement (DTA). Under the pensions article of that agreement, taxing rights over certain retirement fund income are allocated to the country in which the individual is tax resident at the time the income arises — not necessarily the country in which the fund is based or from which the payment is made.
For a South African who has genuinely relocated and is tax resident in the UK, this can mean that SARS was never entitled to tax the payment in the first place — regardless of what a tax directive says. A tax directive reflects what SARS was told and calculated at the time; it does not override the DTA, and it is not the final word on the correct tax outcome.
Where the Difficulty Lay
Resolving this was not straightforward, and two obstacles stood out:
- SARS. Engaging SARS to revisit an issued directive and process a refund based on DTA relief required sustained, technically grounded engagement over an extended period.
- The fund administrator. Fund administrators are often reluctant to apply for a replacement or corrected tax directive once one has already been issued and processed, even where the facts clearly support it.
The Outcome
Through a long-running and carefully managed process, we secured a substantial refund of the tax that SARS had deducted. We also ensured the payment was treated correctly on the UK side, so that our client did not pay tax twice on the same income — the payment was ultimately received tax-free in the UK, consistent with the DTA and local tax legislation.
Why This Matters Beyond This One Case
This is not a one-off technicality. Any South African who has relocated to the UK (and certain other countries) and has a South African retirement fund, annuity, or pension payment falling due — including where a waiting period applies — may be exposed to the same issue. Depending on residence status and the terms of the relevant DTA, tax may be payable only in the country of residence, not in South Africa, even though a directive has been issued suggesting otherwise.
With the right help and advice you could be faced with a financial boost by reclaiming this tax. But it does need the right advice, patience, the right documentation, and experience dealing with both SARS and fund administrators.
How We Can Help
We work with South African expatriates and their advisers to:
- Review the tax treatment of South African retirement fund payments in light of applicable DTAs
- Engage with SARS where an incorrect directive has resulted in over-taxation
- Support fund administrators through the process of correcting or reissuing directives where required
- Coordinate with UK tax advisers to ensure income is not taxed twice
If you, or a client, have South African retirement benefits and now live in the UK, it is worth having the position checked before — or after — a payment is made.
This article describes the general nature of an issue we have successfully resolved for a client. Every case depends on individual facts, residence history, and the specific fund rules involved. Please get in touch to discuss your circumstances.