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HMRC internal manual

Pensions Tax Manual

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Protection from the lifetime allowance charge: lifetime allowance enhancement factors: The recognised overseas scheme transfer factor

Glossary PTM000001
   

Entitlement to a recognised overseas scheme transfer factor
Notifying entitlement to a recognised overseas transfer factor
How to calculate the recognised overseas scheme transfer factor
Examples of how to calculate the recognised overseas scheme transfer factor
How to calculate the relevant relievable amount 

Entitlement to a recognised overseas scheme transfer factor

Section 224 Finance Act 2004

If after 5 April 2006 there is a transfer of an individual’s rights from an arrangement under a recognised overseas pension scheme to an arrangement under a registered pension scheme the individual’s lifetime allowance may be enhanced by a factor which is called a recognised overseas scheme transfer factor.

The recognised overseas scheme transfer factor is calculated by dividing the amount of any sums and assets transferred by the standard lifetime allowance as at the date of the transfer. But if contributions made by or in respect of an individual to, or their accrual of benefits under, the overseas arrangement after 5 April 2006 received UK tax relief the amount transferred has to be reduced by the relevant relievable amount (see How to calculate the relevant relievable amount below).

The deduction of the relevant relievable amount ensures broadly that the enhancement does not include amounts transferred into the registered pension scheme that have benefited from UK tax relief after 5 April 2006 (for example because the individual has had migrant member relief on contributions to the overseas scheme). The relevant relievable amount relates to any part of the period during which the individual was an active member of the recognised overseas pension scheme and was not a relevant overseas individual.

PTM095310 provides guidance on who is a relevant overseas individual and who is not a relevant oversea individual.

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Notifying entitlement to a recognised overseas transfer factor

Regulation 8 The Registered Pension Schemes (Enhanced Lifetime Allowance) Regulations 2006 - SI 2006/131

An individual has to notify HMRC of their entitlement to a recognised overseas scheme transfer factor. Notification should be made on form APSS 202 and received by HMRC no later than five years after the 31 January following the end of the tax year in which the transfer took place.

Separate APSS 202 notification forms should be submitted to HMRC in the following circumstances:

  • where transfers to a registered pension scheme are made from different recognised overseas pension schemes,
  • where transfers to different registered pension schemes are made from one or more recognised overseas pension schemes, or
  • where transfers to a registered pension scheme from a recognised overseas pension scheme are made on different dates.

However, a single APSS 202 form can be submitted to HMRC where there have been transfers from more than one arrangement under a recognised overseas pension scheme to the same registered pension scheme at the same time. The total figures for the transfers from those different arrangements should be shown in the boxes at 7.2 and 7.3.

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How to calculate the recognised overseas scheme transfer factor

Sections 224(4) and (5) Finance Act 2004

The recognised overseas scheme transfer factor is worked out as follows:

  • calculate any relevant relievable amount (see How to calculate the relevant relievable amount below).
  • deduct the result of the first bullet point from the total amount of sums and assets transferred (including the market value of any assets transferred) from an arrangement under a recognised overseas pension scheme made after 5 April 2006.
  • express the resulting amount in the second bullet point as a factor of the standard lifetime allowance as at the date on which the transfer took place.

The recognised overseas scheme transfer factor can be used by the individual in respect of any benefit crystallisation event occurring after the transfer is made.

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Examples of how to calculate the recognised overseas scheme transfer factor

Example 1

Ken transferred £200,000 from his arrangement under a recognised overseas pension scheme to a registered pension scheme on 6 April 2007. He doesn’t have a relevant relievable amount. The standard lifetime allowance for the 2007-08 tax year is £1.6 million so his recognised overseas scheme transfer factor is calculated by dividing 200,000 by 1.6 million. The resulting factor is 0.125, but that is rounded up to 0.13.

Example 2

Amanda transferred £700,000 from her recognised overseas pension scheme to a registered pension scheme on 6 December 2007. She had a relevant relievable amount of £300,000

Deducting the relevant relievable amount from the amount of the transfer

£700,000 - £300,000 = £400,000

The recognised overseas scheme transfer factor is therefore 0.25. That is calculated by dividing £400,000 by £1.6 million (the standard lifetime allowance for the 2007-2008 tax year).

£400,000/£1.6 million = 0.25

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How to calculate the relevant relievable amount

Sections 224, 225 and 226 Finance Act 2004

The relevant relievable amount relates to any part of the overseas arrangement active membership period during which the individual was not a relevant overseas individual (see PTM095310). If there is more than one part of the overseas arrangement active membership period where the individual was not a relevant overseas individual then that individual’s relevant relievable amount is the total of the amounts relating to each of those part-periods.

The overseas arrangement active membership period is defined in section 224(7) Finance Act 2004 and relates to membership of an arrangement under a recognised overseas pension scheme. It begins on the later of the following dates:

  • the date when benefits first began to accrue to or in respect of an individual under the overseas arrangement, and
  • 6 April 2006.

It ends on the earlier of the following dates:

  • immediately before the transfer was made, and
  • the date when benefits ceased to accrue to or in respect of the individual under the overseas arrangement.

The relevant relievable amount is calculated in a number of different ways depending on whether the individual’s recognised overseas pension scheme arrangement is

  • a cash balance arrangement (see PTM095420),
  • an other money purchase arrangement ( see PTM095430),
  • a defined benefits arrangement (see PTM095440), or
  • a hybrid arrangement (see PTM095450).

Normally there will be only one of those types of arrangement in a recognised overseas pension scheme. If that is the case there will be a single transfer and, if applicable, a single calculation of a relevant relievable amount. The basis of the calculation will be determined by the type of arrangement it is.

However, it is possible that an individual could be accruing benefits under different types of arrangement within a single recognised overseas pension scheme that has multiple arrangements. For example, a member of a defined benefits scheme could have two types of arrangement if they were making additional voluntary contributions to the scheme. That is because the additional voluntary contributions would be an other money purchase arrangement. Should that be the case, and if the total amount transferred from the recognised overseas pension scheme related to separate transfers from each of the arrangements, separate calculations of any relevant relievable amounts would need to be made.