Employment income provided through third parties: exclusions: retirement benefits etc: Steps sourced from UK tax relieved funds and relevant transfer funds
Regulation 3 of the Employment Income Provided Through Third Parties (Excluded Relevant Steps) Regulations 2011 [SI2011/2696]
Part 7A income does not arise on relevant steps, to the extent that the sum or asset involved in the step is sourced from certain funds in particular non-UK pension schemes.
Regulation 3 - conditions
This exclusion from Part 7A income applies to relevant steps only to the extent that the sum or asset that is the subject of the relevant step, is sourced from either:
- a UK tax-relieved fund or
- a relevant transfer fund
under a relevant non-UK scheme.
Sourcing: general meaning
A sum of money or asset can be said to be “sourced” for the purpose of this regulation, if it either represents, or has arisen or derived from a sum of money or asset(s) which represent or have represented, either or both of the types of fund bulleted above. “Sourced” is not intended as a particular reference to the absolute origin of the money or asset.
Sourcing: by representation
Whether a sum or money or asset can be said to “represent” a particular fund or part of a particular fund, should be considered using the normal dictionary meaning of the word. It will typically apply where the sum or asset is actually held within such a fund for the purposes of such a fund, or where the sum or asset has been produced to meet an unfunded benefit promise of such a “fund”, for example on transfer.
Sourcing: by arising or deriving directly or indirectly
In testing whether a sum of money or asset has “arisen or derived” from a particular sum of money or assets, it makes no difference whether the connection between the two is direct or indirect.
Sourcing: part or whole
If the sum of money or asset that is the subject of the relevant step is sourced only partly but not wholly from the types of fund bulleted above, then you treat the relevant step as being 2 relevant steps:
- one in relation to the sum or asset in so far as it is sourced from either or both of the types of fund bulleted above, and
- one in relation to the sum or asset in so far as it is not so sourced.
And you then apportion the sum of money or asset on a just and reasonable basis between those two relevant steps.
This regulation only shelters the former step.
What counts as a just and reasonable basis will depend on the facts of the case.
Regulation 5: modification to the relationship between sections 554T to 554X
554S outlines the relationship between sections 554T to 554X. Regulation 5 makes a limited modification to 554S, adding in the exclusions provided by regulations 3 and 4 like so:
Sections 554T, 554U, 554V, 554W, regulations 3 and 4 of SI2011/No2696 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 554V (purchases of annuities out of pension scheme rights), see EIM45625 onwards.
On section 554W (certain retirement benefits etc), see EIM45635 onwards.
On regulation 3, see above on this page.
On regulation 4, see EIM45660.
On section 554X (transfers between certain foreign pension schemes), see EIM45645 onwards.
Other charges on funds within relevant non-UK schemes
Because the underlying principles for granting tax relief to relevant non-UK schemes are so closely related to those for registered pension schemes, the following charges that can apply to registered pension schemes, can also apply to funds within relevant non-UK schemes:
- the growth or accumulation of a UK tax-relieved fund is subject to the rules for a possible annual allowance charge - see PTM113310
- the aggregate value of a UK tax-relieved fund is subject to the rules for a possible lifetime allowance charge - see PTM113410, and
- payments (including unauthorised payments) out of a UK tax-relieved fund and relevant transfer fund are subject to the rules for possible member payment charges and relevant transfer funds are subject to rules for possible taxable property unauthorised payment charges - see PTM113210.
Events under registered pension schemes are excluded from Part 7A income by a specific provision in 554E (see EIM45605). That provision however, does not protect events involving funds within relevant non-UK schemes from counting towards Part 7A income. The absence of such protection could result in a double charge, so regulation 3 provides that exclusion from Part 7A income.