HMRC plan changes to the pension tax rules | KPMG | UK

Planned changes to the pension tax rules for overseas schemes

Planned changes to the pension tax rules for overseas

HMRC plan changes to pension tax rules for foreign schemes which will affect transfers from UK registered pension schemes.

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It was announced at the Autumn Statement that there would be some changes to the pension tax rules for foreign schemes. Draft legislation for some of these was included in the draft Finance Bill clauses released last year, others will be achieved through regulations.

There will be a fundamental change to the conditions that schemes must meet to qualify as an Overseas Pension Scheme (OPS) and a Recognised Overseas Pension Scheme (ROPS). The condition that at least 70 percent of the member’s UK tax-relieved funds must be used to pay them an income for life will be removed.

To be an OPS a scheme must meet a number of tests, one of which is the regulatory requirements test. The requirement that at least 70 percent of the member’s UK tax-relieved funds must be used to pay them an income for life was one of the options for meeting this test. Following the removal of this option, the conditions for meeting the test will be different for occupational and non-occupational pension schemes. For an occupational pension scheme to meet the test from April 2017, if there is a body that regulates occupational pension schemes in that jurisdiction the scheme must be regulated by that body.  If there is no regulator of occupational pension schemes the scheme still passes the test.

For non-occupational pension schemes from April 2017, if there is a body that regulates non-occupational pension schemes in that jurisdiction the scheme must be regulated by that body. If there isn’t, the scheme can pass the test if:

  • It is established in an EU member state (other than the UK), Norway, Liechtenstein or Iceland; or
  • If there is a financial services regulator in that jurisdiction, the scheme provider is regulated by that financial services regulator for the activity of setting up and running a pension scheme.

A ROPS must meet the conditions for an OPS but also other conditions as well.  Following the removal of the 70 percent rule as an option, a ROPS must be established in:

  • An EU member state (other than the UK), Norway, Liechtenstein or Iceland;
  • A country or territory with which the UK has a double taxation agreement that makes provision for exchange of information; or
  • A country or territory with which the UK has a Tax Information Exchange Agreement (TIEA).

The pension age test will remain in place (i.e., the ROPS must have rules that prevent payment of a pension from the member’s UK tax-relieved funds earlier than age 55 other than on ill-health) but further concessions will be added to allow lump sums to be paid earlier than age 55 where they could be paid from a registered pension scheme before age 55, e.g., serious ill-health lump sums.

These changes represent important new rules that registered pension scheme trustees will need to be aware of before making a transfer of a member’s benefits to a Qualifying Recognised Overseas Pension Scheme (QROPS).

Changes will also be made to how payments from foreign schemes and annuities are taxed to ensure consistent tax treatment with payments from registered pension schemes. For example, currently only 90 percent of a foreign pension or annuity payable to a UK resident (except those claiming the remittance basis) is chargeable to UK tax.  This will be changed so that the whole of the pension or annuity will be taxed.

HMRC have now issued some guidance on the changes.

 

For further information please contact :

Simon Mayho

Andrew Scrimshaw

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