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HMRC internal manual

Pensions Tax Manual

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International: tax relief on contributions to overseas pension schemes: overview

Glossary PTM000001
   

 

It is possible for UK tax relief to be given in respect of pension savings made under a non-UK scheme that is not a registered pension scheme. Tax relief may be given in the ways outlined below. Where tax relief is given UK tax charges may apply in respect of those pension savings.

Tax relief for members
Tax relief for employers 
UK tax charges apply to payments into or out of the scheme

Tax relief for members

Individuals may get relief from UK taxation in a number of ways. These are:

  • migrant member relief,
  • transitional corresponding relief,
  • relief under a double taxation agreement, and
  • exemption from liability under section 307 Income Tax (Earnings and Pensions) Act 2003

Migrant member relief

Schedule 33 Finance Act 2004

Section 308A Income Tax (Earnings and Pensions) Act 2003

Migrant member relief is available where an individual has come to the UK as an existing member of the overseas scheme and the conditions explained at PTM111200 are adhered to.

Individuals may receive this relief on contributions made by them or on their behalf, as if the contributions to the overseas pension scheme were made to a UK registered pension scheme.

In addition, where an employer has made a contribution in respect of an employee and the employer can receive migrant member relief those contributions are not taxable as earnings of the employee.

Members can receive migrant member relief if they are also contributing to a UK registered pension scheme subject to overall limits.

Transitional corresponding relief

Paragraph 51 Schedule 36 Finance Act 2004

Individuals not entitled to migrant member relief but who have received ‘corresponding relief’ on contributions made in the 2005-2006 tax year may be entitled to receive transitional corresponding relief. An individual can receive transitional corresponding relief if they are also contributing to a UK registered pension scheme subject to overall limits.

PTM111500 provides guidance on when transitional corresponding relief may be claimed.

Relief under a double taxation agreement

Sections 2 and 6 Taxation (International and Other Provisions) Act 2010

Where a an individual comes from overseas to work in the UK, some double taxation agreements (DTAs) provide relief from UK income tax for pension contributions (relating to that individual) paid to a pension scheme that is tax-recognised in the other country.

Although such DTA provisions tend to be broadly similar, the particular conditions that have to be met to qualify for relief on pension contributions can vary between DTAs

Generally, DTAs containing such provisions enable individuals to receive UK tax relief on contributions made by them or on their behalf as if the contributions to the overseas pension scheme were made to a UK registered pension scheme. Guidance on relief due under a DTA is at PTM111600.

Exemption from liability under section 307 ITEPA

Section 307 Income Tax (Earnings and Pensions) Act 2003

This section provides that where an employer makes provision for a retirement or death benefit for their employees it is not taxable as earnings for the employee concerned.

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Tax relief for employers

Employers can get tax relief on contributions made to non-UK schemes that are not registered pension schemes in respect of employees under:

  • migrant member relief,
  • transitional corresponding relief, and
  • relief under a double taxation agreement.

An employer may claim a deduction for contributions made to an overseas pension scheme in respect of employees who are eligible for migrant member relief. PTM111200 describes the conditions that need to be met to qualify for migrant member relief.

If employer contributions do not qualify as relevant migrant member contributions they may receive transitional corresponding relief. PTM111500 provides guidance on when transitional corresponding relief may be claimed.

Double taxation agreements may also provide for employers to claim a deduction for contributions made to an overseas pension scheme in respect of eligible employees. Guidance on relief due under a double taxation agreement is at PTM111600.

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UK tax charges apply to payments into or out of the scheme

Paragraphs 1, 8 and 13 Schedule 34 Finance Act 2004

An individual can still be liable to UK tax charges in respect of pension savings under an overseas scheme where one or more of the following tax ‘reliefs’ has been given to or in respect of that member:

  • migrant member relief
  • corresponding transitional relief
  • relief under a double taxation agreement, and
  • exemption from tax liability by virtue of section 307 Income Tax (Earnings and Pensions) Act 2003.

The tax charges the individual may be liable to are:

  • the annual allowance charge - see PTM113300,
  • the lifetime allowance charge - see PTM113400,
  • the member payment charges - see PTM113200.

Guidance on when UK tax charges can apply to members of overseas pension schemes starts at PTM113000.