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HMRC internal manual

Employment Income Manual

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Employment income provided through third parties: exclusions: retirement benefits etc: transfers between certain foreign pension schemes

Section 554X ITEPA 2003

Scenarios
Section 390 scheme
Section 390 scheme rights
Reliefs
‘Tax-relieved contributions’ and ‘tax-exempt provision’
Apportionment 1: Scenario 4
Apportionment 2: taxable contributions
The group extension
Both apportionments
How Sections 554T to 554X are related

Section 554X will prevent most transfers of sums and assets from giving rise to Part 7A income to the extent that they derive from employer contributions paid before 6 April 2006 to schemes that HMRC accepted as corresponding to approved pension schemes.

The exclusion is restricted to transfers made to other schemes accepted as corresponding to approved schemes or to non-UK pension schemes.

There is an illustrative example in EIM45650.

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Scenarios

Section 554X applies in four scenarios.

  • Scenario 1.Rights which A has under a ‘Section 390 scheme’ are transferred to another Section 390 scheme.
  • Scenario 2.Rights which A has under a Section 390 scheme are transferred to an ‘overseas pension scheme’ (see RPSM14101030).
  • Scenario 3.Rights which A has under an overseas pension scheme are transferred to another overseas pension scheme and all of the rights transferred are ‘Section 390 scheme rights’.
  • Scenario 4.Rights which A has under an overseas pension scheme are transferred to another overseas pension scheme and some (but not all) of the rights transferred are ‘Section 390 scheme rights’.

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Section 390 scheme

A ‘Section 390 scheme’ is a scheme in relation to which a claim was accepted under Section390 ITEPA 2003 (exception from charge on payments to non-approved pension schemes: non-domiciled employees with foreign employers). See EIM15413.

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Section 390 scheme rights

‘Section 390 scheme rights’ are rights which A has under an overseas pension scheme and which:

  • have been transferred to the scheme (directly or indirectly) from a section 390 scheme, or
  • have arisen or derived (directly or indirectly) from rights that have been so transferred.

Note that ‘Section 390 scheme rights’ is not short for ‘rights which A has under a Section 390 scheme’.

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Reliefs

A relevant step within Section 554C taken for the sole purpose of transferring the rights will not give rise to Part 7A income.

Nor will a relevant step within Section 554B taken by the transferee in relation to the transferred rights on their transfer.

You will need to make an apportionment in Scenario 4.

You will also need to make an apportionment in certain cases where any of the rights transferred arise or derive from contributions paid by B on or after 6 April 2006 and the contributions were neither tax-relieved contributions nor tax-exempt provision.

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‘Tax-relieved contributions’ and ‘tax-exempt provision’

‘Tax-relieved contributions’ means contributions in respect of which relief from tax:

  • has been given by virtue of:

    • Schedule 33 FA 2004 (overseas pension schemes: migrant member relief), or
    • article 15 of SI 2006/572 (the Taxation of Pension Schemes (Transitional Provisions) Order 2006) (transitional corresponding relief), or
  • has been given at any time after 5 April 2006 under one of the United Kingdom’s tax treaties.

On migrant member relief and transitional corresponding relief, see RPSM13201000 onwards.

On treaty relief, see RPSM00500400 onwards.

‘Tax-exempt provision’ means provision in respect of which exemption from tax has been given by virtue of Section 307 ITEPA 2003 (exemption for provision made by employer for retirement or death benefit) at any time after 5 April 2006 when the scheme was an overseas pension scheme.

These definitions are borrowed from Schedule 34 FA 2004.

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Apportionment 1: Scenario 4

You treat the relevant step under review as two separate relevant steps:

  • one in relation to the section 390 scheme rights, and
  • one in relation to the rest of the transferred rights.

You apportion the sum of money or asset which is the subject of the relevant step under review on a just and reasonable basis between the two notional relevant steps.

Section 554X only shelters the former.

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Apportionment 2: taxable contributions

You need to make an apportionment if any of the transferred rights arise or derive (directly or indirectly) from contributions to any scheme which meet four conditions.

  • The contributions are paid on or after 6 April 2006 by:

    • B, or
    • if the group extension applies, a company which is a member of the same group as B at the relevant time.
  • No relief from tax is given for the contribution by virtue of:

    • Schedule33 FA 2004 (overseas pension schemes: migrant member relief), or
    • Article 15 of SI 2006/572 (the Taxation of Pension Schemes (Transitional Provisions) Order 2006) (transitional corresponding relief).

On these reliefs, see RPSM13201000 onwards.

  • No relief from tax is given for the contribution under one of the United Kingdom’s tax treaties. On such relief, see RPSM00500400 
  • The contribution is not provision under an overseas pension scheme in respect of which A is exempted from tax under the benefits code by virtue of Section 307 ITEPA 2003 (exemption from provision made by employer for retirement or death benefit).

In such a case, you treat the relevant step as two separate relevant steps:

  • one in relation to the rights arising or deriving from contributions meeting those four conditions, and
  • one in relation to the rest of the transferred rights.

You apportion the sum of money or asset which is the subject of the relevant step under review on a just and reasonable basis between the two notional relevant steps.

Section 554X only shelters the former.

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The group extension

The group extension applies if:

  • B is a company, and
  • B is a member of a group of companies at the time the taxed sum is paid.

To decide whether B is a member of a group, you apply the rules for corporation tax on chargeable gains (see CG45100 onwards) with one modification.

The chargeable gains test is a 75% test. For the purposes of the group extension, you change ‘75%’ to ‘51%’ throughout.

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Both apportionments

If you have to make both apportionment 1 and apportionment 2, you make them in that order.

And you apply apportionment 2 to the former notional relevant step in apportionment 1 that is, the notional relevant step sheltered by Section 554X.

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How Sections 554T to 554X are related

Sections 554T, 554U, 554V, 554W and 554X are exclusions relating to retirement benefits etc.

To the extent that they apply, you apply them in that order.

On Section 554T (employee pension contributions), see EIM45615.

On Section 554U (pre-6 April 2006 contributions to EFRBS), see EIM45620.

On Section 554V (purchases of annuities out of pension scheme rights), see EIM45625 onwards.

On Section 554W (certain retirement benefits etc), see EIM45635 onwards.