There are key considerations for both employers and individuals when considering tax implications for retirement schemes. This can be particularly complex with international pension arrangements:
- When a retirement scheme is sited in one country and the member is present in another. For example, a German resident who is a member of a UK based pension.
- An individual is based in one country and participating in a retirement scheme in another. For example, a UK resident who is a member of a US retirement scheme such as a 401(k) plan, or a UK resident participating in a French based scheme such as the ARRCO or AGIRC schemes.
- If an individual is residing in a country and beginning to receive income or distributions from a scheme sited abroad. For example, an individual receiving pension income in the UK, from an Australian superannuation scheme.
Retirement schemes remain a key part of both employee remuneration and individual financial planning. The successful determination of the tax treatment for both pension contributions (or benefit accrual in the case of a defined benefit scheme, or the increase in the value of the pension promise for a cash balance scheme) and subsequent receipt of pension distributions is therefore a hugely significant issue for both employer compliance and for an individual’s tax position.
Blick Rothenberg has significant experience in managing international pension tax matters for expatriate individuals and employers with globally mobile workers. We are dedicated to providing our clients with support on all aspects of the tax implications relating to retirement schemes internationally.
Although expatriate pension matters are a highly complex area with many different factors often applicable, the following key areas typically require analysis:
Is the overseas retirement scheme treated as a tax approved pension in the other country?
There are several considerations for both employers and individuals. The first step in many cases is to establish whether the retirement scheme is recognised as a pension scheme for tax purposes, and qualifies for available tax reliefs in the relevant country(s). This determination is often key to determining if pension input is relievable for tax purposes and how pension distributions and income is subject to tax.
Is pension input relievable for tax purposes?
Will individuals working in one country and participating in a pension scheme sited in another receive tax relief for the contributions?
Alongside checking if pension contributions are eligible for tax relief our team can also provide support in terms of the reporting requirements for claiming relief on these contributions. This is a particularly complex area, as you often have to understand both local tax rules in each country as well as the terms of the relevant Double Taxation Agreement.
Further analysis is also required to understand if tax relief has to be restricted because there are limits on the amount of tax relief allowed on contributions. For instance from a UK perspective an Annual Allowance Charge may apply if the level of pension input exceeds the Annual Allowance threshold which is currently lower than contribution levels in other countries.
What is the tax treatment of pension income (e.g. distributions paid from a retirement scheme)?
When an individual lives in one country and receives a distribution or income paid from a pension or retirement scheme sited in another country, you will need to establish the correct tax and reporting treatment in both locations.
Support may also be required to advise on the scope of withholding tax applied to the payment of lump sum distributions and income paid from a pension or retirement scheme.
Finally, you may need to review if there are limits on the size of your pension fund in either country. For instance in the UK, additional tax charges can arise on distributions and income paid from a pension scheme if the total level of pension contributions (input) has exceeded the Lifetime Allowance threshold.
UK advisory services
- Auto-enrolment: Our team can support individuals and employers with understanding the requirements under the UK auto-enrolment rules and their applicability to both employees undertaking international work assignments and globally remote workers. The auto-enrolment rules can pose a significant risk for employers as penalty charges can be applied for the failure to provide a workplace pension for an individual covered by the auto-enrolment provisions.
- Qualifying Recognised Overseas Pension Scheme (QROPS): Where individuals are considering transferring funds from a UK based pension to an overseas pension scheme, we can provide support on the conditions and tax implications when transferring pension fund amounts to an overseas scheme that has QROPS status under UK rules.
- Lifetime Allowance Enhancement Factor (LTAEF): Where an individual has participated in a UK based pension scheme whilst working overseas and holding UK non-resident status under the tax rules, we can provide guidance as to whether they are eligible to claim the Lifetime Allowance Enhancement Factor under UK rules to increase the amount of their Lifetime Allowance threshold.
If you are either an employer or an individual and you would be interested in discussing any global pension tax matters, we would be delighted to speak with you.