British expats in the EU have been struggling with their personal finances over the last couple of years due to Brexit-induced UK bank account closures.
In the last few months of 2020, ahead of the full implementation of Brexit on 1 January 2021, expats started receiving notifications from their UK banks informing them that their accounts would be closed as a result.
This has undoubtedly caused many problems. While the UK state pension can be paid to foreign accounts and in the local currency, several private pensions and investments require a UK bank account to pay income and/or profits to their clients, including the very popular National Savings & Investments (NS&I).
This meant that many expats have struggled to get some of their pensions and investments paid in, as they could no longer have access to a UK bank account.
But some expats have told International Adviser that they have found a way around this hurdle.
The solution has already been a very popular one among people who travel often, as they get to avoid paying charges when making purchases abroad.
The answer seems to be challenger banks, with Revolut the most commonly used among them.
Revolut allows expats to have a UK account number and sort code to have their pensions and/or investments paid into and to use it for payments in their country of residence without incurring additional charges.
This sounds like the best of both worlds, but could there be any tax implications in using challenger banks?
Jason Porter, director at Blevins Franks, told IA that matters of taxation should not be an issue for expats using Revolut.
“Outfits like Revolut have been very successful in picking up customers who want to avoid charges on cross-border transfers or those who have up until recently used their credit cards abroad,” he said.
“Much of the focus following Brexit has been on the UK banks who have been closing the UK accounts of EU residents, and whether these e-money accounts would suffice as receiving banks for UK pension payments, NS&I interest and premium bond winnings due to EU residents.
“The tax position on UK pensions is determined by the residence status of the individual and the Double Tax Treaty (DTT) between the two countries concerned – the country of residence of the policyholder in and where the pension itself is regarded as located.
“Virtually all tax treaties follow the same template, though you do get the odd variation. When it comes to the DTTs the UK has with most EU member states – the UK state pension, a private pension and a company pension are regarded as taxable only where the individual recipient is tax resident.
“Government pensions (eg, teachers, local government, military, etc.) always remain taxable where the pension itself is registered or paid from – so this is likely to be the UK in this instance – and are not taxable where the recipient resides.”
Too good to be true?
But there is a caveat.
A spokesperson for Revolut told IA that clients opening an account from the EU will only be provided with an IBAN number.
If they wish to receive a UK account number and sort code they need to apply from the UK, meaning that if they are residing abroad they are not likely to be able to do so.
Only people who opened a Revolut account when they were still in the UK will be able to take advantage of the situation.
The spokesperson said: “If a customer signs up to Revolut in the UK and then moves abroad, they can maintain a UK Revolut account. If a customer has already moved abroad and then signs up to Revolut, they will have a Revolut account for the country they have a residence address in.”
Porter added: “When you look at NS&I, they require a UK bank account, with a UK sort-code which can accept payment by BACS.
“Non-UK accounts do not have sort-codes, with the EU focusing on IBAN numbers. Whilst a sort-code number is contained within an IBAN, sort-codes are maintained by BACS, and as NS&I use BACS for its transfers, this may well be the crux of the issue here.
“Other pensions will depend upon how the scheme is run. If the scheme does allow transfers based upon the IBAN number, then a Revolut account in the EU should work – particularly as they allow cash holdings in up to 30 different currencies.
“It is important to remember that Revolut is not entirely free of charges, so you would still need to check if there are add-ons for this kind of cross-border payment.”