PENSIONS PROFILE DECEMBER 2011 TRANSFERS FROM AN OVERSEAS PENSION SCHEME = Summary A simplified guide to the process: 1. Individual requests transfer from their overseas pension scheme to their UK registered pension scheme. 2. The transfer is completed on the same basis as transferring from one UK registered pension scheme to another. 3. If the transfer originates from a recognised overseas pension scheme the individual can apply for an enhancement to their personal lifetime allowance. Introduction When an individual permanently moves from abroad to the UK they often wish to transfer the funds held in an overseas pension scheme to a registered pension scheme in the UK. This has always been possible, although it is a long-winded exercise. Her Majesty s Revenue and Customs (HMRC) amended its requirements as part of the Pension Simplification process. ANY QUESTIONS? If you have any questions or comments in relation to this article, please email pensions.technical@landg.com
2 PENSIONS PROFILE = If the transfer comes across from an overseas scheme it will be treated the same as a transfer from any UK registered pension scheme. However, if the transfer originates from a recognised overseas pension scheme it is possible for the individual to arrange an enhancement to their lifetime allowance. A recognised overseas pension scheme must fulfil the following criteria: First of all it must be an overseas scheme, this means that: 1. It cannot be a registered pension scheme in the UK. 2. It must be registered outside the UK and treated as established in the country where its main administration offices are based. 3. It must be regulated as a pension scheme in the country in which it is established with the appropriate national authorities in place to ensure the scheme is run correctly. The overseas scheme can be a personal pension, occupational or even a social security scheme. If the scheme is not regulated by an appropriate body then it must satisfy the following requirements: The scheme is established in the EEA, i.e. a member state of the European Union, Norway, Iceland or Liechtenstein. The scheme rules will provide that at least 70% of a member s UK tax-relieved scheme funds will be used by the scheme manager to provide the member with income for life. Any income will not become payable until the member reaches the normal retirement age unless on the grounds of ill-health. 4. It must be recognised for tax purposes in the country in which it is established. This means: It must be open to residents of the country in which it is established. The scheme must be established in a country in which individuals are subject to income tax and the pension arrangements are eligible for tax concessions. The scheme must also meet one of the following two conditions: i. The overseas pension scheme is recognised/registered with the relevant tax authorities in the country in which it is established. ii. If there is no such recognition or registration then the scheme must provide for at least 70% of a member s UK tax-relieved scheme funds will be used to provide income for life and no payment to the member should be made before their normal retirement date unless on the grounds of ill-health. = If a scheme is established by an international organisation it must meet the following requirements: The scheme rules will provide that at least 70% of a member s UK tax-relieved scheme funds will be used by the scheme manager to provide the member with income for life. Any income will not become payable until the member reaches the normal retirement age unless on the grounds of ill-health. Having satisfied that the transferring scheme is an overseas pension scheme it must also meet the requirements of being a recognised overseas pension scheme. To do so it must satisfy the following criteria: 1. Be a scheme established by a member state of the European Union, Norway, Iceland or Liechtenstein or, 2. Be established in a country which has a double taxation agreement with the UK (see appendix 1 for a list of the countries) or, 3. Must satisfy the requirement of a recognised transfer, meaning: The scheme rules will provide that at least 70% of the funds transferred will be used by the scheme manager to provide the member with income for life.
3 PENSIONS PROFILE Any income will not become payable until the member reaches the normal retirement age unless on the grounds of ill-health. Membership of the scheme is open to persons resident in the country in which it is established. Benefits payable from the UK scheme When the benefits come into payment they will be treated exactly the same as benefits that had accrued under a UK registered pension scheme (25% tax-free cash with the balance used to provide an income). However, there is an additional benefit that the individual can register for an enhancement to their personal lifetime allowance (known as a recognised overseas scheme transfer factor) for post A-day transfers that originate from a recognised overseas pension scheme. The individual needs to apply for the enhancement by completing HMRC form APSS202. The notification should be made no later than five years after the 31 January following the end of the tax year in which the transfer took place. The following example, taken from the Registered Pension Scheme Manual will help explain. Beryl transferred funds from her recognised overseas pension scheme to a registered pension scheme on 5 February 2010, during the 2009/2010 tax year. This means that she must submit a completed form APSS 202 to HMRC no later than five years after 31 January 2011 i.e. by 31 January 2016. To calculate the recognised overseas scheme transfer factor, divide the amount of any sums and assets transferred by the standard lifetime allowance as at the date of the transfer. However, if there have been any contributions made by or in respect of an individual to, or their accrual of benefits under, the overseas arrangement after 5 April 2006 that benefited from UK tax relief, the amount transferred has to be reduced by a relevant relievable amount. For a money purchase arrangement the relevant relievable amount is the amount contributed in the tax years that an individual is not deemed to be a relevant overseas individual. An individual is not a relevant overseas individual if, in a tax year, they are deemed to be a relevant UK individual because: they have UK earnings chargeable to UK tax in that year. they are resident in the UK at some time during that year. they, or their spouse or civil partner, have for that year general earnings from overseas Crown employment subject to UK tax. An individual is also not a relevant overseas individual if in a tax year: they were resident in the UK both at some time during the five tax years immediately before that year and when the individual became a member of the registered pension scheme. they are employed by a UK resident.
4 PENSIONS PROFILE Example On June 2011 Victor wants to transfer a sum of 300,000 from his recognised overseas pension scheme in respect of a former employment. However, he had returned to the UK in August 2007 and from that date he continued to work for his former employer until he left in May 2011. Whilst in the UK he has been subject to UK tax and is consequently no longer deemed to be a relevant overseas individual. The total of the contributions made to his recognised pension scheme from 6 April 2007 to May 2011 (in this case 120,000) are deemed the relevant relievable amount. Victor s lifetime allowance can be enhanced by the value of his fund less the relevant relievable amount i.e. 300,000-120,000 = 180,000. To calculate the recognised overseas scheme transfer factor we divide 180,000 by the standard lifetime allowance in 2011. i.e. 180,000/ 1,800,000 = 0.1 or 10%. If Victor were to crystallise his benefits in the tax year 2011/2012 this would mean that his lifetime allowance would be 1,980,000 ( 1,800,000 + 10%). To complete the transfer from the overseas pension scheme there should not be any further forms to complete but it would be necessary to check that the overseas scheme does satisfy the requirements to be a recognised overseas pension scheme. If the scheme is a recognised overseas scheme and the transfer proceeds it will be necessary for the individual to register the enhanced lifetime allowance with HMRC within the timescale mentioned above. Reciprocal agreements From 6 April 2006 the reciprocal agreements with the Channel Islands, Isle of Man and the Republic of Ireland ceased to exist. Transfers from these places are treated the same as any other transfer from overseas.
5 PENSIONS PROFILE Appendix 1 - Double taxation agreements Countries included in the double taxation agreement Argentina Australia Austria Bangladesh Barbados Belarus Belgium Bolivia Bosnia Herzegovina Botswana Brunei Bulgaria Canada Chile China Croatia Cyprus Czech Republic Denmark Egypt Estonia Falkland Islands Fiji Finland France Gambia Georgia Germany Ghana Greece Grenada Guyana Hungry Iceland India Indonesia Ireland Israel Italy Ivory Coast Jamaica Japan Jordon Kazakhstan Kenya Korea Kuwait Latvia Lesotho Lithuania Luxembourg Macedonia Malaysia Malta Mauritius Mexico Mongolia Morocco Myanmar (see Burma) Namibia
6 PENSIONS PROFILE Netherlands New Zealand Nigeria Norway Oman Pakistan Papua New Guinea Philippines Poland Portugal Romania Russia Serbia and Montenegro Singapore Slovakia Slovenia South Africa Spain Sri Lanka Sudan Swaziland Sweden Switzerland Taiwan Tajikistan Uganda Ukraine United States Uzbekistan Venezuela Vietnam Zambia Zimbabwe This is not a consumer advertisement. It is intended for professional financial advisers and should not be relied upon by private customers or any other persons. This document is based on Legal & General s current understanding of tax law, HMRC practice and legislation, which may change. It should not be considered a definitive statement in law. Legal & General Assurance Society Limited Registered in England No. 166055 Registered office: One Coleman Street, London EC2R 5AA Authorised and regulated by the Financial Services Authority. PP11/11 Non GASD www.legalandgeneral.com