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HMRC internal manual

Pensions Tax Manual

International: UK tax charges on non UK schemes: the member payment charges and taxable property charges: definition of UK tax-relieved fund, relevant transfer fund, ring-fenced transfer fund and taxable asset transfer fund

Glossary PTM000001
   

The member payment charges apply to a payment made, or treated as made, to or in respect of a member, to the extent that the payment is referable to that member’s

  • UK tax-relieved fund
  • relevant transfer fund, or
  • ring-fenced transfer fund(s)

under the relevant non-UK scheme (RNUKS).

The taxable property unauthorised payments charges apply only to the extent that a payment treated as made is referable to a member’s taxable asset transfer fund (TATF) under the RNUKS.

UK tax-relieved fund 
Relevant transfer fund
Ring-fenced transfer fund
Taxable asset transfer fund

UK tax-relieved fund

Paragraph 3 Schedule 34 Finance Act 2004

Regulation 2 The Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006 - SI 2006/207

The member’s UK tax-relieved fund under an RNUKS (see PTM113210) is that part of the scheme that represents

  • any UK tax-relieved contributions paid in respect of the member after 5 April 2006 that have received

    • migrant member relief (see PTM111200),
    • transitional corresponding relief (see PTM111500) or
    • relief under a double taxation agreement (see PTM111600), and
  • any provision made under the scheme in relation to the member after 5 April 2006 that is tax exempt by virtue of section 307 Income Tax (Earnings and Pensions) Act 2003.

Investment build-up within the RNUKS on such contributions and provision is not taken into account for the purposes of the member payment charges because it will not have benefited from UK tax relief.

The amount of the member’s UK tax-relieved fund is calculated in accordance with regulation 2 of The Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006. The regulations provide for aggregation of the amounts relating to the member in the scheme which are pension input amounts (see PTM113300):

  • for each tax year (after 5 April 2006) before that in which the calculation falls to be made, and
  • for the period beginning with 6 April of the tax year in which the calculation falls to be made and ending immediately before the making of the calculation as if that was a full tax year.

When making this calculation it is necessary to assume that section 229(3) Finance Act 2004 does not apply. This provides that there is no pension input amount for a tax year if, before the end of the tax year, the individual has become entitled to all of their benefits under the scheme or has died.

The UK tax-relieved fund relates to a particular RNUKS so if an individual is a member of two such schemes they will have two separate funds.

Example

Helen received a payment from an RNUKS on 31 December 2014. She came to the UK as a member of the scheme in 2002.

Her pension input amount for 2006-07 and all tax years to 2013-14 was £40,000.

Helen’s pension input amount for 2014-15 is also £40,000, made up of £30,000 for the period from 6 April 2014 to 31 December 2014 and £10,000 from 1 January 2015 to 31 March 2015.

The amount of Helen’s UK tax-relieved fund on 31 December 2014 is therefore £350,000 made up of:

£320,000 for 2006-07 to 2013-14 (£40,000 x 8), plus

£30,000 for the period 6 April 2014 to 31 December 2014

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Relevant transfer fund

Paragraph 4 Schedule 34 Finance Act 2004

Regulation 3 The Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006 - SI 2006/207

The member’s relevant transfer fund under an RNUKS (see PTM113210) is the part of the scheme in respect of a member that represents their relevant transferred sums or assets.

Relevant transferred sums or assets means any sums or assets transferred directly or indirectly, into a member’s arrangement under the relevant non-UK scheme from:

  • a registered pension scheme or,
  • another RNUKS.

Such a transfer must have been made after 5 April 2006 and at a time when the RNUKS was an overseas pension scheme (see PTM112200).

However a relevant transfer fund cannot include sums or assets that form part of a member’s ring-fenced transfer fund.  So a relevant transfer fund can include only sums and assets from the following transfers:

  1. A direct transfer from a registered pension scheme made before 9 March 2017,
  2. A direct transfer of a UK tax-relieved fund held under an RNUKS that is qualifying recognised overseas pension scheme (QROPS) before 9 March 2017
  3. A direct transfer of a UK tax-relieved fund held under an RNUKS that is not a QROPS made before 6 April 2017
  4. A transfer of a relevant transfer fund held under another RNUKS, i.e. an indirect transfer of any of the previous three types of transfer.

The amount of the member’s relevant transfer fund under an RNUKS is calculated in accordance with Regulation 3 of The Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006. It is the total of the following amounts:

  • the amount crystallised by virtue of BCE 8 (PTM088690 refers) on the transfer from a registered pension scheme to the RNUKS.
  • so much of the Member’s UK tax-relieved fund previously held under any other RNUKS that has been transferred to the scheme, but has not been subject to the unauthorised payments charge (see PTM134100); and
  • so much of the member’s relevant transfer fund previously held under any other RNUKS as has been transferred into the current scheme if it was transferred without being subject to the unauthorised payments charge.

There will only be an amount in the relevant transfer fund if the scheme was a qualifying recognised overseas pension scheme (QROPS) when receiving the transfer. If the scheme was not a QROPS, the transfer will not have been a benefit crystallisation event and will have given rise to an unauthorised payments charge.

The amounts to be used in the calculation are the amounts transferred to the scheme.

The relevant transfer fund relates to a particular RNUKS, thus if an individual is a member of two such schemes he/she will have two separate funds.

Example

Gillian transferred £500,000 from a registered pension scheme (scheme A) to a QROPS (scheme B) on 29 June 2015. This is the amount crystallised by virtue of BCE 8. Her relevant transfer fund in scheme B is therefore £500,000.

Gillian then transfers £150,000 from another RNUKS (scheme C) to scheme B. This transfer took place on 8 March 2017.   She has received migrant member relief on contributions of £50,000 to scheme C and £100,000 was contributed without UK tax relief whilst she was resident in Japan. So her UK tax-relieved fund under that scheme amounted to £50,000. The transfer was not subject to the unauthorised payments charge.

Her relevant transfer fund in scheme B is therefore increased to £550,000.

In May 2017 Gillian transfers £200,000 in from another registered pension scheme.  Because this transfer took place after 8 March 2017 it cannot form part of Gillian’s relevant transfer fund.  It will instead form a ring-fenced transfer fund under the scheme.

The amount of Gillian’s relevant transfer fund remains at £550,000.

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Ring-fenced transfer fund

Paragraph 1(6A) to (6F) Schedule 34 Finance Act 2004

A ring-fenced transfer fund is created when there is an ‘original relevant transfer’ or a ‘subsequent relevant transfer’.  Each ring-fenced transfer fund has a key date.  This means that a ring-fenced transfer fund can contain only one transfer and a member can have multiple ring-fenced transfer funds under a scheme.

Original relevant transfer

An original transfer is one of the following transfers to a qualifying recognised overseas pension scheme (QROPS):

  • a direct transfer from a registered pension scheme that was made on or after 9 March 2017,
  • a transfer of all or part of a member’s UK tax-relieved fund on or after 9 March 2017 if the scheme from which the transfer was made was a QROPS at the time of the transfer, or
  • a transfer of all or part of a member’s UK tax-relieved fund on or after 6 April 2017 if the scheme from which the transfer was made was not a QROPS at the time of the transfer.

Subsequent relevant transfer

This is simply the transfer of all or part of an existing ring-fenced transfer fund to another scheme.

Key date

Each ring-fenced transfer fund has a key date.  The key date where a ring-fenced transfer fund is created as a result of an ‘original relevant transfer’ is the date of the transfer into the scheme.

Where a ring-fenced transfer fund is created as the result of a ‘subsequent relevant transfer’ it inherits the key date from the previous ‘original relevant transfer’.

Example

Hubert is a member of QROPS No1 and has a number of funds under the scheme that have benefited from UK tax relief under the scheme. 

In November 2015 Hubert transferred his pension savings under a registered pension scheme into the scheme.  This transfer is held under a relevant transfer fund.

On 22 June 2017 Hubert transferred pension savings held under another registered pension scheme into the scheme.  This is an ‘original relevant transfer’ and creates a ring-fenced transfer fund with a key date of 22 June 2017.

Hubert has also benefited from UK tax relief on contributions his employer made to the scheme for him.  These contributions constitute a UK tax-relieved fund for Hubert.

On 3 January 2020 Hubert transfers all his savings in QROPS No1 to QROPS 2.  Under QROPS 2 Hubert has the following funds:

  • a relevant transfer fund – this is the relevant transfer fund transferred from QROPS No1
  • a ring-fenced transfer fund with a key date of 22 June 2017 – this was the ring-fenced transfer fund held under QROPS No1.  It became a ring-fenced transfer fund under QROPS 2 as a result of a ‘subsequent relevant transfer’ and so it keeps the key date it held under the previous scheme.
  • a ring-fenced transfer fund with a key date of 3 January 2020 – this was the UK tax-relieved fund under QROPS No1.  It became a ring-fenced transfer fund under QROPS 2 as a result of an ‘original relevant transfer’ and so the key date for this fund is 3 January 2020, the date the transfer was made.

Amount of ring-fenced transfer fund

Paragraph 1(6C), (6D)(a) and (6F) Schedule 34 Finance Act 2004

The amount of a member’s ring-fenced transfer fund is the total value of the sums and assets actually transferred into the scheme.  Note that this is different to the methodology of calculating the amount of a member’s relevant transfer fund.  The value of the sums and assets transferred includes a transfer representing any of the following:

  • a member’s uncrystallised rights, either built up by the member or received as the result of a pension credit;
  • a pension in payment (including drawdown pension) crystallised in the capacity of a member;
  • a pension in payment (including drawdown pension) received in the capacity of a beneficiary, i.e. as a dependant, nominee or successor.

Taxable asset transfer fund

Regulation 3A The Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006- SI 2006/207

A member is liable to the taxable property unauthorised payments charge only to the extent that the payment is referable to that member’s taxable asset transfer fund under the scheme.

The amount of the member’s taxable asset transfer fund under an RNUKS is the total of the following amounts:

  • the amount crystallised by virtue of BCE 8 (PTM088690 refers) on the transfer from a registered pension scheme to the RNUKS
  • so much of the member’s taxable asset transfer fund previously held under any other RNUKS as has been transferred into the current scheme, if it was transferred without being subject to the unauthorised payments charge.

The taxable asset transfer fund therefore forms part of the member’s relevant transfer fund under an RNUKS, except where the relevant transfer fund under that scheme consists solely of a UK tax-relieved fund which has been transferred to it.