UK tax-relieved contribution to non-UK pension schemes

This is in recognition that someone transferring to the UK may prefer to continue to use a pre-existing non-UK pension scheme instead of joining a UK-registered scheme. Or, perhaps while on secondment to the UK from overseas, they remain an active member of their employer’s non-UK pension scheme.

UK residents who simply decide to set up a non-UK pension scheme on a whim will not qualify for the same reliefs.

Qualifying contributions to a non-UK pension scheme are subject to the same UK rules regarding the annual allowance (see Pension contributions) and elements of the non-UK retirement benefits are subject to UK rules regarding the timing of retirement and lump sums (see Pension tax-free lump sums). For the latter, ‘the lump sum allowance’ and the ‘lump sum and death benefits allowance’ only apply to the UK tax-relieved fund, its value being the aggregate amount of contributions on which one of the following forms of UK tax relief or exemption has been given. It is not the subsequent value of the fund attributable to the UK tax-relieved or exempted contributions.

More generally, any non-UK pension scheme that holds funds attributable to UK tax relieved/exempt contributions is known as a relevant non-UK scheme (RNUKS). RNUKS funds may be exposed to additional UK tax charges (member payment charges) if used in paying retirement or death benefits that are inconsistent with UK rules (for example, retirement benefits paid before age 55) or the UK tax relieved fund provides a loan to the member or holds certain taxable investments (for example, residential property, gold bullion, art, etc.).

Migrant Member Relief (MMR)

A UK tax relief/exemption is potentially available on personal/employer contributions to a qualifying overseas pension scheme (QOPS).

If a non-UK pension scheme is a QOPS, it will have been registered with HMRC and they will have given it a QOPS number. QOPS should not be confused with a qualified recognised overseas pension scheme (QROPS) or recognised overseas pension scheme (ROPS) – non-UK pension schemes potentially qualified to receive a transfer from a UK registered pension scheme. While there is a list of the latter in the public domain, there is no such public list of QOPS available.

If the administrator of the QOPS has gone to the trouble of registering with HMRC then they will presumably be aware of their status and QOPS number.

Other conditions for MMR include:

• The individual was a member of the QOPS before coming to the UK and was entitled to local tax relief on contributions paid while resident in the 10 years before coming to the UK, and
• The member has told the QOPS administrator that they will be claiming MMR in the UK.

Relief under Double Taxation Agreements

The Double Taxation Agreements (DTAs) that the UK has with certain countries provides for UK tax relief and exemptions to be given to UK residents on contributions paid to pension schemes in the other country. Each DTA will have its requirements but, in all cases, the non-UK pension plan has to have been in place and a contribution paid before the individual became UK tax resident.

In most cases HMRC’s agreement is required that the non-UK pension scheme generally corresponds to a UK registered pension scheme.

As a condition of DTA relief, a few of the DTAs require that the non-UK pension scheme be ‘subject to the same conditions’ as a UK pension scheme. HMRC interprets this as the pension provider undertaking to report to HMRC when pension benefits are paid to the individual from pension funds attributable to UK tax relieved contributions. Understandably, a foreign pension scheme administrator might be reluctant to provide such an undertaking to a foreign tax authority.

Relief under Section 307, Income Tax (Earnings and Pensions) Act 2003

Section 307 is brief and merely confirms, among other things, that an employer’s provision for a retirement or death benefit is not taxed in the UK as a benefit in kind.

However, the exemption does not apply to:

• The cost of insuring against the risk that the retirement or death benefit cannot be paid because of the employer’s insolvency
• Employer contributions to an arrangement that provides anything in addition to a retirement or death benefit.

Nor does section 307 allow an individual to claim UK tax relief on their own contributions.

Transitional Corresponding Relief (TCR)

Prior to 6 April 2006, non-UK domiciled individuals living and working in the UK for a non-UK employer could claim UK tax relief on their own contributions and/or were exempt from UK tax on their employer’s contributions to a non-UK pension that HMRC (the then ‘UK Inland Revenue’) accepted as ‘corresponding’ to a UK exempt approved pension scheme. Acceptable schemes were issued with a SF-prefixed reference number.

After 5 April 2006, pre-existing members of a corresponding approved pension scheme who had received corresponding relief/exemption in the 2005/6 tax year could continue to claim what is known as transitional corresponding relief on personal and employer contributions to the same scheme.

Evidently, this type of relief is rarely in point these days.

Would you like to know more?

If you have any questions about the above, please get it touch with your usual Blick Rothenberg contact or Tomm using the form on this page.

Disclaimer:

This article is intended to give you an insight into the possibilities available to claim UK tax relief on contributions made to a non-UK pension scheme.

Please note, it has been written for information only and should not be relied upon in assessing your own situation.