Cash Clinic: As a Dutch citizen, can I avoid paying British bank fees?

I AM a Dutch citizen and have lived in Scotland for almost 20 years.

At the moment I receive a monthly pension of about €100, which is transferred monthly to my bank account. Due to the exchange rate and bank fees this amounts to only about £75. Next year I will receive my Dutch state pension, which will be about €450.

Is there a way to ensure that I really do get that amount? For example, would it be possible to open an account with a bank in Holland and save on fees and rates either by making less frequent transfers or withdrawing money in euros directly from the Dutch account?

HS Edinburgh

A. Having a euro bank account would enable you to receive your state pension without suffering the high bank charges that generally apply to the receipt of funds in different currencies.

However, if you need to use the funds to support your life in Scotland then at some stage you will need to convert euros to pounds, and whilst initially receiving your pension into a euro account will give you some control over the exchange rate used by allowing you to choose the frequency and time of conversion, you will still suffer conversion charges to some degree, either directly through the charging of a fee or indirectly where no charge is made through a less favourable rate.

Of course, if you do not need to withdraw the funds to Scotland, and will use them instead to cover expenses during trips to the Netherlands or other euro countries, having a euro account will avoid conversion charges, though as most Dutch banks charge an annual account fee you may still have some costs. Whilst most UK banks also offer euro accounts the charges are likely to be significantly greater than those for a Dutch bank.

You should also consider the impact of the pension payments on your UK tax position. Although you remain a Dutch citizen, as you are resident in the UK you will be subject to UK tax on your worldwide income. This will include any income received abroad or paid into a non-UK bank account.

Whether or not you use a Dutch account, your Dutch state pension will therefore form part of your total income for UK tax purposes (but it being an overseas pension you can claim a tax deduction of 10 per cent of the pension received) and, to the extent your income exceeds the personal allowance, UK income tax will be payable on it. Even if your current income is below the level of the personal allowance so that at present you have no liability to UK income tax, the receipt of the state pension may push your future income above this level giving you a 20 per cent tax charge on the excess.

If you are not currently required to complete an income tax return you will have to notify HM Revenue & Customs of your Dutch pension no later than 5 October after the end of the tax year in which you begin to receive your pension. You may either then be required to complete a UK income tax return and pay the tax arising or your PAYE code will be adjusted to effectively collect the tax through deduction from any UK source earnings.

• Neil Mitchell is a tax partner at Mazars Scotland.

If you have a question you need answered, write to Jeff Salway c/o The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or email: {mailto:[email protected]|[email protected]|[email protected].