If I live in the UK, is my Israeli pension taxed in Israel or the UK?

A British retiree who worked in Israel for years now lives in Bournemouth and draws an Israeli pension. Each month she wonders whether the money should be taxed in Jerusalem, in London, or, to her alarm, in both. The treaty gives a clean answer for most pensions, but getting Israel to stop deducting tax at source takes a specific step that many people skip.

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Detailed Answer

The allocation of taxing rights comes from the double tax treaty between the United Kingdom and Israel, whose original 1962 agreement was updated by a protocol that entered into force at the end of 2019. Its pension article follows the standard international pattern: a private or occupational pension is taxable only in the country where the recipient is resident. For a British resident, that means an ordinary Israeli private-sector or occupational pension is taxable in the UK and not in Israel. The important exception is a government-service pension, meaning one paid for past service to the State of Israel or a public authority, which the treaty generally keeps taxable in Israel, in the paying state. So a former Israeli civil servant and a former private-company employee, both now in Bournemouth, are treated differently, and the first question is always which kind of pension you actually hold.

Knowing the treaty answer is only half the job, because Israeli domestic law does not automatically defer to it at the moment of payment. Under Section 164 of the Income Tax Ordinance a pension payer in Israel is required to withhold tax at source, and it will keep doing so on a pension paid abroad unless it is presented with an approval that the treaty exempts or reduces the tax. That approval is obtained from the Israel Tax Authority, which reviews your residence and the nature of the pension and issues a withholding exemption or reduced-rate certificate to the payer. Without it, Israel deducts tax the treaty says it should not levy, and you are left reclaiming it, which is slower and more uncertain than preventing the deduction in the first place. On the UK side, HM Revenue and Customs taxes the pension as your income, and if any Israeli tax was properly due, for example on a government pension, the treaty gives a credit so the same slice is not taxed twice.

In Practice: Under the UK-Israel treaty a private Israeli pension is taxable only in the UK for a UK resident, while a government-service pension stays taxable in Israel. To stop the Israeli payer withholding under Section 164 of the Income Tax Ordinance you apply to the Israel Tax Authority (Rashut HaMisim) for a treaty withholding exemption, which commonly takes several weeks to a few months to issue; on an Israeli pension of, say, NIS 8,000 a month, that approval is what prevents 25% or more being deducted at source unnecessarily.

For a UK non-resident the practical sequence is: confirm the pension type, obtain a UK certificate of residence from HMRC, and file for the Israeli withholding exemption before or soon after payments begin. Expect to renew or refresh the position periodically, and expect the Israeli fund to ask for a life certificate (ishur chaim) to keep paying abroad, which is an administrative confirmation you are alive, separate from the tax question. Watch the National Insurance angle too: an Israeli National Insurance (Bituach Leumi) old-age pension is a social-security payment and is treated differently from an occupational pension, so it should be analysed on its own footing. The mirror-image situation, a UK pension received while living in Israel, is covered in our answer on a UK private pension paid in Israel.

When to Consult a Lawyer

• Part or all of your pension is for Israeli government or public-sector service. That slice may remain taxable in Israel under the treaty, and the credit against your UK tax has to be claimed correctly to avoid double taxation.
• Israel is withholding tax on a pension the treaty allocates to the UK. Securing the Section 164 exemption from the Israel Tax Authority stops the deduction, and it is far easier than reclaiming tax after the fact.
• You have more than one Israeli income source. Pensions, rental, and National Insurance benefits each follow different treaty articles, and they should be mapped together before you file on either side.

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Speak With an Israeli Attorney

A UK resident's Israeli private pension should be taxed only in the UK, but Israel will keep deducting tax at source until you obtain the treaty exemption. We identify the correct treaty treatment for your pension, secure the withholding exemption from the Israel Tax Authority, and coordinate the position with your UK filing.

Contact us for a confidential initial consultation.