transfers from an overseas pension scheme - Legal & General

PENSIONS PROFILE DECEMBER 2011TRANSFERS FROM ANOVERSEAS PENSIONSCHEME=SummaryA simplified guide to the process:1. Individual requests transfer from their overseas pension scheme to their UK registeredpension scheme.2. The transfer is completed on the same basis as transferring from one UK registeredpension scheme to another.3. If the transfer originates from a recognised overseas pension scheme the individual canapply for an enhancement to their personal lifetime allowance.IntroductionWhen an individual permanently moves from abroad to the UK they often wish to transfer the funds heldin an overseas pension scheme to a registered pension scheme in the UK. This has always beenpossible, although it is a long-winded exercise. Her Majesty’s Revenue and Customs (HMRC) amendedits requirements as part of the Pension Simplification process.ANY QUESTIONS?If you have any questionsor comments in relation tothis article, please emailpensions.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 anyUK registered pension scheme. However, if the transfer originates from a recognised overseas pensionscheme 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 mainadministration offices are based.3. It must be regulated as a pension scheme in the country in which it is established with theappropriate national authorities in place to ensure the scheme is run correctly. The overseasscheme 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 fundswill be used by the scheme manager to provide the member with income for life. Any incomewill not become payable until the member reaches the normal retirement age unless on thegrounds 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 taxand 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 taxauthorities in the country in which it is established.ii. If there is no such recognition or registration then the scheme must provide for at least70% of a member’s UK tax-relieved scheme funds will be used to provide income forlife and no payment to the member should be made before their normal retirement dateunless 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 beused by the scheme manager to provide the member with income for life. Any income will not becomepayable 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 therequirements of being a recognised overseas pension scheme. To do so it must satisfy the followingcriteria:1. Be a scheme established by a member state of the European Union, Norway, Iceland orLiechtenstein or,2. Be established in a country which has a double taxation agreement with the UK (see appendix1 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 thescheme 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 ageunless 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 schemeWhen the benefits come into payment they will be treated exactly the same as benefits that had accruedunder 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 theirpersonal lifetime allowance (known as a recognised overseas scheme transfer factor) for post A-daytransfers that originate from a recognised overseas pension scheme.The individual needs to apply for the enhancement by completing HMRC form APSS202. Thenotification should be made no later than five years after the 31 January following the end of the tax yearin 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 schemeon 5 February 2010, during the 2009/2010 tax year. This means that she must submit a completed formAPSS 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 assetstransferred by the standard lifetime allowance as at the date of the transfer. However, if there have beenany contributions made by or in respect of an individual to, or their accrual of benefits under, theoverseas arrangement after 5 April 2006 that benefited from UK tax relief, the amount transferred has tobe reduced by a “relevant relievable amount”. For a money purchase arrangement the relevantrelievable amount is the amount contributed in the tax years that an individual is not deemed to be arelevant overseas individual.An individual is not a relevant overseas individual if, in a tax year, they are deemed to be a relevant UKindividual 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 Crownemployment 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 thatyear and when the individual became a member of the registered pension scheme.• they are employed by a UK resident.

4 PENSIONS PROFILEExampleOn June 2011 Victor wants to transfer a sum of £300,000 from his recognised overseas pensionscheme in respect of a former employment. However, he had returned to the UK in August 2007 andfrom that date he continued to work for his former employer until he left in May 2011. Whilst in the UKhe has been subject to UK tax and is consequently no longer deemed to be a relevant overseasindividual. The total of the contributions made to his recognised pension scheme from 6 April 2007 toMay 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 amounti.e.£300,000 - £120,000 = £180,000. To calculate the recognised overseas scheme transfer factor wedivide £180,000 by the standard lifetime allowance in 2011. i.e. £180,000/£1,800,000 = 0.1 or 10%. IfVictor were to crystallise his benefits in the tax year 2011/2012 this would mean that his lifetimeallowance 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 tocomplete but it would be necessary to check that the overseas scheme does satisfy the requirements tobe a recognised overseas pension scheme. If the scheme is a recognised overseas scheme and thetransfer proceeds it will be necessary for the individual to register the enhanced lifetime allowance withHMRC within the timescale mentioned above.Reciprocal agreementsFrom 6 April 2006 the reciprocal agreements with the Channel Islands, Isle of Man and the Republic ofIreland ceased to exist. Transfers from these places are treated the same as any other transfer fromoverseas.

5 PENSIONS PROFILEAppendix 1 - Double taxation agreementsCountries included in the double taxation agreementArgentina Australia AustriaBangladesh Barbados BelarusBelgium Bolivia Bosnia HerzegovinaBotswana Brunei BulgariaCanada Chile ChinaCroatia Cyprus Czech RepublicDenmark Egypt EstoniaFalkland Islands Fiji FinlandFrance Gambia GeorgiaGermany Ghana GreeceGrenada Guyana HungryIceland India IndonesiaIreland Israel ItalyIvory Coast Jamaica JapanJordon Kazakhstan KenyaKorea Kuwait LatviaLesotho Lithuania LuxembourgMacedonia Malaysia MaltaMauritius Mexico MongoliaMorocco Myanmar (see Burma) Namibia

6 PENSIONS PROFILENetherlands New Zealand NigeriaNorway Oman PakistanPapua New Guinea Philippines PolandPortugal Romania RussiaSerbia and Montenegro Singapore SlovakiaSlovenia South Africa SpainSri Lanka Sudan SwazilandSweden Switzerland TaiwanTajikistan Uganda UkraineUnited States Uzbekistan VenezuelaVietnam Zambia ZimbabweThis is not a consumer advertisement. It is intended for professional financial advisers and should not be relied upon by private customers or any otherpersons.This document is based on Legal & General’s current understanding of tax law, HMRC practice and legislation, which may change. It should not beconsidered a definitive statement in law.Legal & General Assurance Society LimitedRegistered in England No. 166055Registered office: One Coleman Street, London EC2R 5AAAuthorised and regulated by the Financial Services Authority.PP11/11 Non GASDwww.legalandgeneral.com