|
Overseas Pension Transfers
If an
individual member holding a Personal Pension requests a transfer between
their UK registered pension scheme and another it will be a recognised
transfer so long as certain conditions are met.
If a transfer
from one pension scheme to another isn’t a ‘recognised
transfer’ some significant tax consequences are incurred which are
dealt with below.
So what if someone moves abroad and wants
to transfer to an offshore pension scheme?
Her Majesty’s
Revenue and Customs (HMRC) starting point is pension funds which have
enjoyed UK tax benefits should not be able to transfer to overseas
schemes which don’t have the same restrictions.
However,
rather than ban overseas transfers altogether or penalise them so much
that it has the same result, HMRC will, in some circumstances, treat a
transfer to an overseas scheme as a recognised transfer. The scheme
manager of the overseas scheme would have to supply certain information
to HMRC and the scheme would have to meet certain conditions. If this is
done, HMRC will recognise it as a Qualifying Recognised Overseas Pension
Scheme (QROPS) and transfers to it from UK schemes will be recognised
transfers.
What is a QROPS?
There are various ‘hurdles’ a scheme has to overcome before
HMRC will recognise it as a QROPS. A QROPS needs to meet the conditions
to be:
• an overseas pension scheme and
• a
recognised overseas pension scheme and finally
• a qualifying
recognised overseas pension scheme.
A QROPS is therefore the
top of the tree in HMRC’s eyes when it comes to foreign pension
schemes. However, even if all the requirements are met, HMRC can refuse
to recognise an overseas scheme (for instance if it doesn’t provide
all the information it said it would).
If it is not, the
transfer will be an unauthorised payment resulting in tax penalties.
An overseas pension scheme
• can’t
be a registered pension scheme. Equally well, a registered pension
scheme can’t be an overseas pension scheme which seems fair and
• has to be established outside the UK (‘established’
usually means where its registered office and main administration is)
and
• must be regulated as a pension scheme in the country or
territory in which it’s established. If there is no body to
regulate it, the scheme must be either:
o established in the
European Union or in Norway, Iceland or Liechtenstein or
o the
scheme’s rules must provide that at least 70% of the UK tax
relieved funds will be used to provide a pension for life from the
member’s normal minimum pension age and
• must be ‘recognised
for tax purposes’ in the country or territory in which it’s
established. This means it must be:
o open to all residents and
o established in a country or territory where there is taxation of
personal income from which relief is not available in respect of the
contributions made to pension schemes or all or most of the benefits are
subject to taxation or the scheme itself is subject to taxation on its
income and gains and is of a specified kind * and
o approved,
recognised or registered by the relevant tax authorities or if there is
no system for this, it must be able to pass the ‘70%’ rule
above.
* This last way of satisfying the condition was
introduced to allow Australian schemes to continue to be able to be
recognised as QROPS after changes to the taxation of Australian schemes
introduced on 1 July 2007. A complying Australian superannuation plan is
currently the only specified kind of scheme.
An international
organisation (such as the United Nations or the European Union) can
establish a scheme outside the UK. To be regarded as an overseas pension
scheme, such a scheme only has to meet the ‘70%’ rule and
allow benefits to be paid before the normal minimum pension age only if
the member is in ill-health.
A recognised
overseas pension scheme
• has to be established in a
country which is in the European Union, Norway, Liechtenstein or
Iceland, or
• has to be established in a country or territory
with which the UK has a Double Taxation Agreement that contains exchange
of information and non-discrimination provisions, or
• must
provide that
o at least 70% of the funds transferred will be used
by the scheme manager to provide the member with an income for life,
o the retirement benefits payable to the member from the transfer
funds are payable no earlier than normal retirement date (unless on
ill-health grounds), and
o membership of the scheme is open to
people resident in the country or territory in which it is established.
A qualifying recognised overseas pension
scheme
• has to notify HMRC that it’s a recognised
overseas pension scheme and have provided evidence of that if required
and
• must promise to tell HMRC if it stops being a
recognised overseas pension scheme and
• has to tell HMRC the
name of the country or territory it’s established in and
•
has to provide any other evidence HMRC need and
• has to
promise to give HMRC certain information on making payments in respect
of certain scheme members and
• must not have been excluded
by HMRC from being a QROPS.
• To notify HMRC, the overseas
scheme manager can use form APSS251 which has been designed to help.
Recognised transfers to QROPS
•
an important point is that unlike a recognised transfer between two UK
registered pension schemes, a transfer from a UK scheme to a QROPS is a
benefit crystallisation event. So if the amount of the transfer is over
the relevant lifetime allowance, a lifetime allowance charge will be
levied. However, because the payment is not to the individual, the rate
charged is 25%, not 55%, despite the fact that it involves a lump sum.
There will be no effect on the annual allowance as it isn’t a
contribution (although all payments made in the pension input period up
to the date of transfer will)
• some overseas schemes (for
example schemes in the USA) may not accept the transfer value
•
the UK scheme administrator must report the transfer to HMRC (they would
also have to report a non-recognised transfer)
• the QROPS
scheme manager must agree to tell HMRC when they pay benefits from the
transferred fund or if they transfer the fund again. Any payment or
transfer which wouldn’t have been an authorised payment or
recognised transfer from a UK registered pension scheme will suffer the
normal tax penalties (see below)
• a transfer to a QROPS is
not a chargeable event for inheritance tax (IHT) purposes
•
the QROPS itself is not subject to IHT and therefore doesn't suffer
periodic or exit charges
• as a transfer to a recognised
overseas pension scheme is a 'permitted transfer', enhanced protection
will not be lost on such a transfer, including a transfer to a QROPS
• if the transfer contains a Guaranteed Minimum Pension (GMP)
or Protected Rights, there are other things the UK scheme has to do
before the transfer can go ahead. It has to:
o get written
confirmation from the member that he understands that the overseas
scheme might not give the same degree of protection
o take
reasonable steps to check that, where the QROPS is an occupational
scheme, the member is actually employed by that employer
o take
reasonable steps to check that the member has received a statement of
what benefits the transfer value will provide in the QROPS.
Non-recognised transfers
• A
non-recognised transfer may result in the following tax penalties:
• an unauthorised member payment charge of 40% of the transfer
value
• if all unauthorised payments in a 12 month period are
more than 25% of the fund value, an unauthorised payments surcharge of
15% of the transfer value will be payable by the individual
•
the registered pension scheme will have to pay a scheme sanction charge
of 40% of the transfer value. If the scheme administrator has deducted
the member's tax charge from the transfer payment and paid the tax
charge to HMRC on the member's behalf, the scheme administrator may
reduce the amount of the scheme sanction charge by the lesser of 25% and
the amount of member's tax charge deducted as a proportion of the
transfer payment
• if the amount of non-recognised transfers
exceed 40% of the scheme’s assets, it could be de-registered with a
de-registration charge of 40% of the scheme’s assets.
Transfers from overseas schemes
In this
case, a transfer is coming from a pension scheme which is not regulated
and taxed by HMRC to one that is. Almost all pension transfers from
overseas pension schemes to UK registered pension schemes are allowable
and treated in a similar way to recognised transfers. However a
registered pension scheme isn’t obliged to accept the transfer.
Overseas transfers into registered pension schemes aren’t
recognised transfers. However they aren’t unauthorised payments
either as unauthorised payments can only come from UK registered pension
schemes. The transfer doesn’t count as a contribution and therefore
doesn’t get tax relief but also doesn’t count against the
annual allowance, nor is it a benefit crystallisation event (BCE) so it
doesn’t trigger off a test against the lifetime allowance at time
of transfer. However it will count against the lifetime allowance when a
BCE does occur, unless it comes from a recognised overseas pension
scheme.
If the transfer is from a recognised overseas pension
scheme, the individual’s lifetime allowance can be enhanced by the
same percentage as the transfer value bears to the standard lifetime
allowance at time of transfer. So if John has a transfer of £160,000
from a recognised overseas pension scheme during 2007/08, his personal
lifetime allowance will be 10% higher than the standard lifetime
allowance (£160,000/£1,600,000). This recognises the fact that
the transferred funds haven’t received any tax advantages from
HMRC. An individual has up to 5 years from 31 January following the tax
year in which the transfer is made to claim this enhancement by
registering it with HMRC. So John has until 31 January 2014 to register
his claim to an enhancement to his lifetime allowance. It’s
important to note that this enhancement is only available if the
transfer is from a recognised overseas pension scheme – if it is
not a recognised scheme, the enhancement can’t be claimed.
Important Notes:
All references to taxation are based
on our understanding of current taxation law and practice and may be
affected by future changes in legislation and the individual
circumstances of the investor.
In addition, the information
provided is also based on our current understanding of the relevant
Finance Acts.
Pension investment values and income arising from
them can fall as well as rise.
This information does not
constitute advice and we cannot accept responsibility for its
interpretation or any future changes to law. Any advice and
recommendations will be given in writing.
|
