Guidance

Pension schemes newsletter 85 - March 2017

Updated 21 March 2017

1. Spring Budget 2017

At the Spring Budget on 8 March 2017, the government announced a number of measures in connection with pensions.

1.1 Charges on transfers to qualifying recognised overseas pension schemes (QROPS)

The government announced a number of changes to the tax treatment of transfers of tax relieved pension savings to QROPS. Legislation has been introduced in Finance Bill 2017.

From 9 March 2017, in addition to the checks that you make to ensure that an overseas transfer is a recognised transfer you will also need to check if the overseas transfer charge applies.

The overseas transfer charge will apply on transfers to QROPS if your scheme member formally requested their transfer on or after 9 March 2017 and none of the following apply

• they are resident in the country where the QROPS receiving the transfer is based
• they are resident in a country in the European Economic Area (EEA) and the QROPS they are transferring to is based in another EEA country
• the QROPS they are transferring to is an occupational pension scheme and they are an employee of a sponsoring employer under the scheme at that time
• the QROPS they are transferring to is an overseas public service scheme and they are employed by an employer that participates in that scheme at that time
• the QROPS they are transferring to is a pension scheme of an international organisation and you are employed by that international organisation at that time

If your member formally requested the transfer before 9 March 2017, for example the member requested in writing for a transfer to be made to a named QROPS but the transfer payment was not made until after 9 March 2017, the 25% overseas transfers charge will not apply.

To help you decide if the overseas transfer charge applies to a transfer you must ask your member for information about the transfer and you can use the updated Pension schemes: member information APSS263 to do this.

If your member does not give you this information and you make the overseas transfer, you must automatically deduct the 25% overseas transfer charge and pay this to HM Revenue and Customs (HMRC).

The information requirements for UK pension scheme administrators making overseas transfers are also changing. You’ll have to tell HMRC, the transferring member and the overseas scheme manager details of every transfer and whether the overseas transfer charge applies. If a transfer is not a taxable overseas transfer you’ll need to provide the reason why. We have updated the Pension schemes: transferring UK tax-relieved pension assets APSS262 so that you can provide these details to HMRC.

We would remind all pension scheme administrators that you must provide this information. If you don’t provide this information within the timescales set out in the pension tax rules you may be liable to penalties. This includes circumstances where we have had to reject the APSS262 for any reason and have sent you a request to resubmit. You can find more information about the scheme administrator requirements after the overseas transfer in the Pensions Tax Manual.

The scheme administrator of the registered pension scheme or the scheme manager of the QROPS making the transfer is jointly and severally liable to the overseas transfer charge and they must deduct and pay this to HMRC.

If a transfer is taxable, you will also need to report this on the Accounting for Tax Return (AFT). For taxable overseas transfers made between 9 March 2017 and 30 June 2017 you will need to report these and pay the tax on the AFT for the quarter ending 30 September 2017.

A change in member’s circumstances within 5 years may result in a change to the tax treatment of the original transfer and could lead to a repayment being due. You can find more information on repayments at Pension schemes: information requirements.

In addition, as a result of the changes announced in the Budget, an overseas scheme cannot be a QROPS unless the scheme manager has given HMRC an undertaking that they will operate the new overseas transfer charge and pay this to HMRC when due.

For the purposes of these new undertakings only, HMRC will deem existing QROPS to continue to meet the ‘qualifying’ requirement to be a QROPS until 13 April 2017. If by 13 April 2017 HMRC has not received the new undertaking the overseas scheme will automatically cease to be a QROPS.

From 14 April 2017 we will suspend the recognised overseas pension schemes (ROPS) notifications list and publish an updated list on 18 April 2017. We have updated our forms and guidance for UK scheme administrators.

To help reach scheme members thinking about transferring to a QROPS and overseas scheme managers receiving and making transfers, we have produced additional guidance, included in this newsletter as Appendix 1 and Appendix 2. We are happy for you to use the wording in these in your literature or on your websites as appropriate.

1.2 Changes to the tax treatment of foreign pensions

A number of changes are being made to the tax treatment of foreign pensions to more closely align UK and foreign pension savings to make the system simpler. The changes will limit the inconsistencies in the remaining tax treatment of UK and foreign pension savings and in particular, will address the gaps that arise as a result of only certain parts of the UK tax regime applying to foreign pension schemes.

The changes will

• bring foreign pensions and lump sums paid to UK residents fully into tax
• close specialist pension schemes for those employed abroad (‘section 615’ schemes) to new saving
• extend UK taxing rights from five to ten tax years over non-UK residents’ foreign lump sum payments out of funds transferred out of the UK from relevant non UK schemes (RNUKS)
• extend UK taxing rights so that they apply to payment out of a QROPS in the five years after a transfer
• align the tax treatment of funds transferred between registered pension schemes
• update the conditions foreign schemes must meet to get UK tax relief on contributions and transfers by removing the requirement for 70% of transferred funds to be used to provide the member with an income for life
• bring the pension age test in line with registered pension schemes

In addition, the country of establishment rules will change so that a ROPS must be established in

• either an EU member state (other than UK), Norway, Liechtenstein or Iceland
• a country or territory with which the UK has a double taxation agreement
• a country or territory with which the UK has a tax information exchange agreement (TIEA)

The changes will apply from 6 April 2017 however not all of the changes have been made in Finance Bill 2017; some are being made through regulations which are being made separately in The Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) (Amendments) Regulations 2017.

1.3 Reduction to money purchase annual allowance (MPAA)

At Spring Budget 2017 the government announced that from 6 April 2017 the MPAA will reduce to £4,000. Legislation will be included in Finance Bill 2017.

In Pension schemes newsletter 83 we referred to the HM Treasury consultation on lowering the level of the MPAA to £4,000.

The Reducing the money purchase annual allowance consultation closed on 15 February 2017. The response to the consultation is being published on 20 March 2017 here Reducing the money purchase annual allowance.

1.4 Master trusts tax registration

The government announced that it will amend the tax registration process for master trust pension schemes to align with the Pensions Regulator’s new authorisation and supervision regime. We will provide further updates on what this means for pension scheme administrators as work progresses.

1.5 Pension scams consultation

The pension scams consultation closed on 13 February 2017 and the government will set out the full response later in Spring 2017.

2. Qualifying recognised overseas pension schemes (QROPS)

2.1 Changes to the scheduled publication of the ROPS notifications list

As a result of the changes announced at Spring Budget 2017 and the further changes taking effect from 6 April 2017, we will be publishing updates to the ROPS notifications list as follows:

• 15 March 2017 - routine publication of the ROPS notifications list
• 6 April 2017 - routine publication of the list will be rescheduled from 1 April to 6 April 2017 to tie in with the start of the 2017 to 2018 tax year
• 14 April 2017 - we will suspend the ROPS notifications list
• 18 April 2017 – we will publish an updated list
• 1 May 2017 - routine publication of the ROPS notifications list

2.2 QROPS online

In Pension schemes newsletter 83 we explained that from April 2017 QROPS online will no longer be accessible. Changes to QROPS forms in recent years mean that the system no longer captures the correct information so we are closing QROPS online.

You can find more information about the pension tax rules on overseas pension schemes, including the latest version of the forms to report information we require, on the overseas pension scheme collection page.

3. Pension flexibility - reporting of non-taxable death benefits through Real Time Information (RTI)

In Pension schemes newsletter 78 we gave revised guidance on the reporting of wholly non-taxable death benefits through RTI, whilst we investigated why P6 tax coding notices were being issued in error.

We have now completed our investigations and are currently working on a solution. However, the solution will not be ready for the start of the 2017 to 2018 RTI reporting year, so for now scheme administrators should continue to follow the guidance in Pension schemes newsletter 78.

We want to remind scheme administrators that this guidance only applies to death benefit payments where the whole of the payment is non-taxable. All other payments including non-taxable elements should continue to be reported as per previous guidance.

We will provide a further update and guidance as soon as we can in a future newsletter. We will work with scheme administrators to give you as much time as possible and consider workarounds if necessary.

We are sorry for any inconvenience this may cause.

4. Relief at Source

4.1 Relief at Source - annual returns of individual information for 2015 to 2016

In January 2016 we issued notices requiring pension schemes operating Relief at Source to submit their annual return of individual information for tax year 2015 to 2016 (also known as the RPSCOM100(Z)) to HMRC by 5 October 2016.

The deadline for submitting the 2015 to 2016 returns has passed but there are still a number outstanding. In Pension schemes newsletter 83 and Pension schemes newsletter 84 we reminded scheme administrators that failure to submit this information by the deadline will hold up any subsequent interim repayments pending receipt of the outstanding information. Where a submission is made but fails processing, we still deem this to be outstanding and will stop any subsequent interim repayment claims pending successful re-submission.

If your submission fails for a third time we’ll stop all future interim repayments until a further re-submission is received and is deemed successful.

Since October 2014 we’ve stopped a number of interim repayment claims for non-submission or submission failure and where possible, and have worked closely with pension scheme administrators to help them meet their obligations.

If you’re a pension scheme administrator operating a relief at source pension scheme but have yet to receive a notice requiring you to submit this information for 2015 to 2016, pensions.businessdelivery@hmrc.gsi.gov.uk and put ‘Relief at Source’ in the subject line of your email.

You can find more information on relief at source repayments and the member information we need relating to relief at source in the GOV.UK guide Relief at Source annual information returns.

4.2 Change of filing deadline for annual return of individual information for 2016 to 2017

In Pension schemes newsletter 75 and Pension schemes newsletter 84 we explained that the filing deadline for the annual return is being brought forward from October to July each year and that we’ve changed the date that we issue the notices to provide this information to January in preparation for the introduction of the July filing deadline.

We issued information notices for the 2016 to 2017 annual return of individual information at the end of January 2017. The filing deadline for the 2016 to 2017 annual return is 5 July 2017.

If you’re a pension scheme administrator operating Relief at Source and you’ve not received a notice, please email pensions.businessdelivery@hmrc.gsi.gov.uk and put ‘Relief at Source’ in the subject line of your email.

5. Scottish rate of Income Tax

We are continuing to work closely with the pensions industry to understand the impacts of the introduction of the Scottish rate of income tax on both business processes and systems. In particular our work has focussed on how

• scheme administrators will submit the annual return of individual information to HMRC in future
• HMRC will notify pension scheme administrators of their members’ taxpayer status (Scottish or rest of UK)
• scheme administrators can determine the status for a new scheme member or a member that has started to re-contribute to their scheme following a period of non-contributions

5.1 Submission of annual return of individual information

As explained in article 4b of this newsletter, the filing deadline for submission of the 2016 to 2017 annual return of individual information has changed to 5 July 2017. We have changed this so that we can review member information submitted and advise pension scheme administrators whether or not the taxpayer is UK resident for tax purposes before the start of the next tax year.

We also explained in Pension schemes newsletter 83 that the Secure Data Exchange Service (SDES) will replace Secure Electronic Transfer (SET) for transferring bulk data (including submission of the annual return of individual information) into and out of HMRC. We can confirm that for the 2016 to 2017 return you can continue to submit in the usual way.

However for 2017 to 2018 returns onwards, your submission method may change depending on how you currently submit your return.

If you submit your annual return of individual information using the existing SET service you will be able to continue to do so. In summer 2017 we will start to automatically migrate you to the new SDES service.

If you don’t currently use SET, as we start to move to the new SDES service in Summer 2017 you must enrol onto SDES. You will have until January 2018 to do this. We will provide more information and support to help you do this.

5.2 Notifying the relief at source rate/taxpayer residential status

Once we have processed the information you provide in your 2016 to 2017 annual return of individual information we will give you a report of the taxpayer residential status. We will issue this report through the SDES. This will provide you with the information you need so that you can give your members the right amount of basic rate tax relief on their pension contributions for 2018 to 2019. We aim to do this in January 2018.

5.3 Taxpayer status look-up service for relief at source new scheme members/re-contributing members

At recent industry workshops, you asked us to provide a service so that scheme administrators can check the taxpayer status of a new scheme member. We are currently developing this and will provide more detail on this as soon as possible

6. Lifetime Allowance

6.1 Deadline for applying for individual protection 2014 (IP2014)

In Pension schemes newsletter 84 we explained that the deadline for applying for IP2014 is 5 April 2017. Please remind your members that if they want to protect their pension savings using IP2014 they must make their application no later than 5 April 2017.

Members who want to apply for IP2014 protection must do this through the lifetime allowance online service, accessed through the guide Protect your lifetime allowance.

To apply, members will need an HMRC Online Services account. To create an account, or to login to an existing one, they should go to HMRC services: sign in or register.

Members can find more information about the lifetime allowance and protecting their pension savings on GOV.UK.

Although the deadline for applications for IP2014 closes at midnight on 5 April 2017, individuals will still be able to log on and amend an existing application after this date.

6.2 The 2017 to 2018 Event Report

As we explained in Pension schemes newsletter 77, we have been reviewing the Event Report. Because this work is ongoing we have not updated the Event Report for 2017 to 2018 to include the new lifetime allowance protection regimes.

This means that if you have to report details of your members who have relied on IP2014 (applied for using the digital service), fixed protection 2016 or individual protection 2016 you will need to email us at pensions.businessdelivery@hmrc.gsi.gov.uk and put ‘Lifetime Allowance 2017 to 2018 Event Report’ in the subject line of your email. We will confirm how you need to provide this information.

7. Pension scheme registrations

We have recently been receiving calls chasing the progress of applications to register new pension schemes.

This is a reminder that as explained in our GOV.UK guidance, in some cases we will need to ask further questions before we can make a decision on whether to register a pension scheme and this can take time.

We also explain that there is no time limit on how long we can take to decide whether to register a scheme but we will always notify the scheme administrator of our decision. If we decide not to register the scheme, we will tell you the reason for our decision.

If we haven’t decided within 6 months of receiving the application you can appeal to a tribunal as if we had told you that we’d decided not to register the scheme.

You can find more information on our pension scheme registration process in the GOV.UK guide Register a scheme.

8. Appendix 1 - Overseas transfer charge, pension scheme members

These changes apply to transfers to QROPS only. If you make an overseas transfer to a pension scheme that is not a QROPS then the unauthorised payments charges (of up to 55% of the value of the transfer) may apply. So you still need to check if the overseas pension scheme you are transferring to meets the requirement to be a QROPS.

You will still be able to make a transfer free of UK tax if you are transferring (up to your lifetime allowance) to a QROPS and formally requested your transfer before 9 March 2017 or one of the following apply

• you are resident in the country where the QROPS receiving your transfer is based
• you are resident in a country in the EEA and the QROPS you are transferring to is based in another EEA country
• the QROPS you are transferring to is an occupational pension scheme and you are an employee of a sponsoring employer under the scheme at that time
• the QROPS you are transferring to is an overseas public service scheme and you are employed by an employer that participates in that scheme at that time
• the QROPS you are transferring to is a pension scheme of an international organisation and you are employed by that international organisation at that time

You will need to think about your circumstances and the overseas scheme to which you are transferring so that you know if your transfer will lead to the overseas transfer charge.

Your UK pension scheme administrator or overseas scheme manager will ask you for some information to help them decide if the overseas transfer charge applies to your transfer. If you do not give them this information, they will automatically deduct the 25% tax charge.

Although you are liable to the overseas transfer, if you make a taxable overseas transfer your UK scheme administrator or overseas scheme manager will deduct the 25% charge from your transfer fund.

If within five years of a transfer to a QROPS, you become resident in another country, you must tell the scheme that made the QROPS transfer, the scheme that received the transfer and HMRC. A change in your circumstances may mean that a charge or a repayment becomes due.

Updated forms and guidance are now available on the overseas pension schemes collection page and pension scheme administration collection page.

9. Appendix 2 - Overseas transfer charge, overseas scheme managers

As a result of the changes announced in the Budget, your overseas scheme cannot be a QROPS unless you have given HMRC an undertaking that you will operate the new overseas transfer charge and pay this to HMRC when due.

For the purposes of these new undertakings only, HMRC will deem your QROPS to continue to meet the ‘qualifying’ requirement to be a QROPS until 13 April 2017.

If by the 13 April 2017 HMRC has not received your new undertaking your overseas scheme will automatically cease to be a QROPS. You must use form Pension schemes: overseas scheme manager March 2017 undertaking APSS240 to provide the new undertaking from 9 March 2017. You must return this to HMRC by post and it must reach us by 13 April 2017.

From 14 April 2017 we will suspend the ROPS notifications list and publish an updated list on 18 April 2017.

If you have submitted an APSS251 to notify or re-notify HMRC that your scheme is a recognised overseas pension scheme and haven’t heard from us, please note that we will be unable to respond until we have received your completed APSS240.

In addition, when making an onward transfer to another QROPS you will also need to check if the overseas transfer charge applies.

The overseas transfer charge will apply on onward transfers to another QROPS if your scheme member formally requested their transfer on or after 9 March 2017 and none of the following apply

• the funds being transferred are pre 9 March 2017 funds
• the member is resident in the country where the QROPS receiving the transfer is based
• the member is resident in a country in the EEA and the QROPS they are transferring to is based in another EEA country
• the QROPS they are transferring to is an occupational pension scheme and the member is an employee of a sponsoring employer under the scheme
• the QROPS they are transferring to is an overseas public service scheme and the member is employed by an employer that participates in that scheme
• the QROPS they are transferring to is a pension scheme of an international organisation and the member is employed by that international organisation

Pre 9 March 2017 funds are funds that were in a QROPS, or for which a transfer to a QROPS was requested, before 9 March 2017. The overseas transfer charge does not apply to these funds.

To help you decide if the overseas transfer charge applies to a transfer you must ask your member for information about the transfer and you can use the new Pension schemes: member information for the overseas scheme manager APSS255 to do this.

The information requirements for overseas scheme managers making payments and onwards transfers are also changing. You’ll have to tell HMRC, the transferring member and the overseas scheme manager details of every transfer and whether the overseas transfer charge applies. If a transfer is not a taxable overseas transfer you’ll need to provide the reason why. We have updated the Pension schemes: payments in respect of relevant members APSS253 so that you can provide these details to HMRC.

If a transfer is taxable, when HMRC receives your information we will tell you how to pay the tax.

Updated forms and guidance for overseas scheme managers are now available on our overseas pension schemes collection page.