HMRC internal manual

Employment Income Manual

The taxation of pension income: foreign pensions

Section 573 ITEPA 2003

Section 573 ITEPA 2003 applies to any pension paid by or on behalf of a person who is outside the United Kingdom to a person who is resident in the United Kingdom. It does not apply to any pensions charged by any of the provisions in Part 9 Chapters 5 to 14 ITEPA 2003 (see EIM74001).

Voluntary pensions

Section 574 ITEPA 2003 extends the charge under section 573 to a pension that is paid voluntarily or is capable of being discontinued if the following conditions are met:

  • the pension is paid to a former employee or office holder or to their widow, widower, surviving civil partner, child, relative or dependant
  • the payment is paid by or on behalf of the person who employed the former employee (or the person under whom the office was held) or by the successors of that person.

Annuities and income withdrawal from overseas pension schemes

From 6 April 2011, section 574 ITEPA 2003 also extends the charge under section 573 to:

  • an annuity under, or purchased with sums or assets held for the purposes of, or representing acquired rights under, a relevant non-UK scheme or an overseas pension scheme
  • an amount paid under a relevant non-UK scheme or an overseas pension scheme which, if the scheme were a registered pension scheme, would be income withdrawal or dependants’, nominee’s or successor’s income withdrawal.  Each type of income withdrawal has the meaning within paragraphs 7, 21, 27D and 27J of Schedule 28 to FA 2004.  See from PTM062000 for drawdown pension rules and PTM072000 for death benefit drawdown rules.

The term “overseas pension scheme” has the same meaning as in section 150(7) FA 2004.

The term “relevant non-UK scheme” should be read in accordance with paragraph 1(5) of Schedule 34 to that Act.

See the Pensions Tax Manual from PTM110000 for more detail on the reliefs and charges for overseas pension schemes and relevant non-UK schemes.

Lump sums from foreign pension schemes

From 6 April 2017, section 574A(1)(a) ITEPA 2003 also extends the charge under section 573 to a “relevant lump sum” paid to, or in respect of, a member under a scheme which is not:

  • a registered pension scheme
  • a relevant non-UK scheme
  • an employer-financed retirement benefits scheme (EFRBS) established in the United Kingdom

See EIM74510 for more detail on the provisions relating to relevant lump sums.

Taxable pension income

With effect from 6 April 2017, Section 575 (as amended by IT(TOI)A 2005) provides that the taxable amount of a foreign pension is the full amount arising in the tax year unless the income is charged in accordance with Section 832 of IT(TOI)A (relevant foreign income charged on the remittance basis).  Before that date only 90% of the amount arising in the tax year was taxable.

As foreign pensions are treated as “relevant foreign income”, Chapters 2, 3 and 4 of Part 8 IT(TOI)A respectively provide for claims to remittance basis, deductions and reliefs and unremittable income.  These Chapters contain the rules that formerly applied to Case V of Schedule D.

Other pension income with a foreign source

The rules for foreign pensions also apply for determining the amount of taxable pension income for certain employment related foreign annuities (see Sections 609 to 611A ITEPA 2003 and EIM74007) and for foreign voluntary annual payments (see section 635 ITEPA 2003 and EIM74011).

Pre-1973 pensions paid under the Overseas Pensions Act 1973

Under Section 1 Overseas Pensions Act 1973, the responsibility for payment for certain pensions was transferred to the United Kingdom government from the governments of a number of former United Kingdom colonies. Section 629 ITEPA 2003 charges these pensions provided that the original pensioner retired before 6 April 1973. Pensions paid to the widow or widower of the original pensioner are also covered. Where Section 629 applies, the taxable amount of pension income is determined in accordance with the rules for foreign pensions. Section 629 does not apply to any statutory increases resulting from the application of the Pensions (Increase) Act 1971. Section 569 ITEPA 2003 (United Kingdom pensions) will apply to the statutory increases (see EIM74003).