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Pensions Tax Manual

International: UK tax charges on non UK schemes: the member payment charges and taxable property charges: the order in which payments and crystallisation events are referable to a member’s UK funds on or after 6 April 2017

Glossary PTM000001
   

PTM113250 and PTM113255 provide guidance on which payments and crystallisation events, will reduce a member’s UK funds under a relevant non-UK scheme (RNUKS) after 5 April 2017.

This page tells you:

  • to which of a member’s UK funds any payment made on or after 6 April 2017 is referable, and
  • the order in which a member’s UK funds will be reduced.

PTM113270 provides examples of when and how a member’s UK funds are reduced.

Throughout this page of guidance the phrase ‘UK funds’ means a:

  • UK tax-relieved fund,
  • relevant transfer fund,
  • ring-fenced transfer fund, or
  • a combination of more than one of those funds.

For guidance on the definition of these types of fund go to PTM113230.

The order in which a payment is referable to a member’s UK funds, or in which a member’s UK funds are reduced depends on the nature of the payment.  There are special rules for transfer payments and deemed payments that are subject to the taxable property unauthorised payments charge (see PTM113220).

Normal order of attributing payments{#top}
Order of attribution for transfer payments
Order of attribution for payments subject to the taxable property unauthorised payments charge
The four Rules for attributing payments to a relevant transfer fund and ring-fenced transfer funds

Normal order of attributing payments

Regulation 4ZC (3), (7) to (9) The Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006 - SI 2006/207

Any payment, apart from

  • transfers, and
  • deemed payments subject to the taxable property unauthorised payments charge,

will be referable to the member’s funds under the RNUKS in the following order of priority:

  1. UK tax-relieved funds built up before 6 April 2017;
  2. Relevant transfer fund;
  3. Ring-fenced transfer funds with a key date of 5 April 2017 or earlier.  If a member has more than one ring-fenced transfer fund in this group, the payment is referable first to the fund with the earliest key date working through to the fund with the latest key date.
  4. UK tax-relieved funds built up on or after 6 April 2017;
  5. Ring-fenced transfer funds with a key of 6 April 2017 or later.  If a member has more than one ring-fenced transfer fund in this group, the payment is referable first to the fund with the earliest key date working through to the fund with the latest key date;
  6. Any other funds under the scheme.

Where that payment is one that reduces a member’s UK funds (see PTM113250), or a crystallisation event listed at PTM113255 occurs, the member’s funds under the RNUKS will be reduced in the same order of priority.

So a payment will be referable first to the member’s UK tax-relieved fund built up before 6 April 2017.  When those funds have been reduced to nil, or the member does not have any such funds, the payment is next referable to the member’s relevant transfer fund, and so on down the order of priority. 

Further detailed rules apply where a payment or crystallisation event may reduce a member’s relevant transfer fund or one or more of their ring-fenced transfer funds.  For more information, see ‘The four Rules for attributing payments to a relevant transfer fund and ring-fenced transfer funds’ below.

These four Rules apply because a payment or crystallisation event that is attributable to:

  • the member’s relevant transfer fund may also be attributable to the member’s taxable asset transfer fund; 
  • one or more of the member’s ring-fenced transfer funds may also be attributable to the member’s ring-fenced taxable asset transfer fund.

This order of attributing payments ensures that a payment is referable first to the member’s UK funds to which the five year non-residence rule applies – see PTM113210 ‘When the member payment charges do not apply’. 

PTM113270 provides examples of when and how a member’s UK funds are reduced.

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Order of attribution for transfer payments

Regulation 4ZC (4), (5) and (7) to (9) The Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006 - SI 2006/207

Where the payment is a transfer made on or after 6 April 2017, any part of the transfer that is not subject to the taxable property unauthorised payments charge will be attributed to the member’s funds under the RNUKS in the following order of priority.

So a payment will be referable first to the member’s UK tax-relieved fund built up before 6 April 2017.  When those funds have been reduced to nil, or the member does not have any such funds, the payment is next referable to the member’s relevant transfer fund, and so on down the order of priority. 

  1. Ring-fenced transfer funds.  If a member has more than one ring-fenced transfer fund in this group, the payment is referable first to the fund with the latest key date working through to the fund with the earliest key date.
  2. UK tax-relieved funds built up before 6 April 2017;
  3. Relevant transfer fund;
  4. UK tax-relieved funds built up on or after 6 April 2017;
  5. Any other funds under the scheme.

Where the transfer includes the transfer of an asset that is taxable property subject to the taxable property unauthorised payments charge (an appropriated asset), that part of the transfer will be attributed to the member’s funds under the RNUKS in the following order of priority.

  1. Ring-fenced transfer funds and ring-fenced taxable asset transfer fund (RFTATF).  If a member has more than one ring-fenced transfer fund in this group, the payment is referable first to the fund with the latest key date working through to the fund with the earliest key date.
  2. Relevant transfer fund and taxable asset transfer fund (TATF).

Where the payment is referable to a ring-fenced transfer fund or relevant transfer fund see also The four Rules for attributing payments to a relevant transfer fund and ring-fenced transfer funds.  Where the transfer includes taxable property (an appropriated asset), to the extent of the appropriated asset, attribute the payment and reduce the funds in accordance with Rule 2. 

If a transfer does not include taxable property attribute the payment and reduce the funds in accordance with Rule 4.

Where the transfer consists entirely of taxable property (an appropriated asset), attribute the payment and reduce the funds in accordance with Rule 2.

Where the transfer is a mix of taxable property (an appropriated asset) and sums and assets that are not taxable property:

  • to the extent of the appropriated asset(s), attribute the payment and reduce the funds in accordance with Rule 2;
  • to the extent of the transfer of sums and assets that are not appropriated assets attribute the payment and reduce the funds in accordance with Rule 4.

So the transfer payment is referable first to the fund at the top of the order of priority; the ring-fenced transfer fund with the latest key date.  Where the member doesn’t have such a fund, or that fund has been used up by reducing the fund value to nil, the payment is referable to the next fund in the order of priority; a ring-fenced transfer fund with the next latest key-date or, if the member doesn’t have one, to any UK tax relieved funds built up on or after 6 April 2017.  As a payment reduces funds to nil you move down the priority order of attribution.

PTM113270 provides examples of when and how a member’s UK funds are reduced.

This order of attributing payments ensures that the overseas transfer charge operates as intended.  It is designed so that payments cannot be ordered so as to avoid paying the tax charge on a transfer that would otherwise be subject to the overseas transfer charge.

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Order of attribution for payments (other than transfers) subject to the taxable property unauthorised payments charge

Regulation 4ZC (6) to (9) The Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006 - SI 2006/207

The taxable property unauthorised payments charge can arise only in respect of a transfer member (see PTM113210 for definition).  It can only arise to the extent that a member has a taxable asset transfer fund or/and ring-fenced taxable asset transfer fund. 

PTM113220 provides more information on when the taxable property unauthorised payments charge arises.

Where an RNUKS makes a deemed unauthorised payment that is subject to the taxable property unauthorised payments charge it is attributable to the member’s funds in the following order of priority:

  1. The member’s relevant transfer fund and taxable asset transfer fund (TATF);
  2. The member’s ring-fenced transfer fund(s) and ring-fenced taxable asset transfer fund (RFTATF).  Where the member has more than one ring-fenced transfer fund under the scheme, the deemed unauthorised payment is referable first to the fund with the earliest key date working through to the fund with the latest key date.

The next section of guidance gives details of how these payments are attributed to the member’s relevant transfer fund/taxable asset transfer fund and ring-fenced transfer fund/ring-fenced taxable asset transfer fund.

PTM113270 provides examples of when and how a member’s UK funds are reduced.

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The four Rules for attributing payments to a relevant transfer fund and ring-fenced transfer funds

Payments and crystallisation events attributable to the member’s relevant transfer fund or a ring-fenced transfer fund are attributed and reduce those funds in accordance with the following four Rules.  An earlier Rule applies in priority to a later Rule.

Rule 1

Rule 1 applies where an RNUKS that is an investment-regulated pension scheme makes an unauthorised payment to a transfer member (see PTM113210) by virtue of section 174A Finance Act 2004 (see PTM113220).

Where such an unauthorised payment is made and is attributable to the member’s relevant transfer fund:

  • the payment will be treated as made out of the member’s relevant transfer fund and taxable asset transfer fund (TATF), but
  • the interest in taxable property, in respect of which the unauthorised payment is treated as made, will represent the payment and - as an “appropriated asset” - will form part of the member’s relevant transfer fund and TATF up to an amount equal to the amount of that payment.

Where such an unauthorised payment is made and is attributable to one or more of the member’s ring-fenced transfer funds:

  • the payment will be treated as made out of the member’s ring-fenced transfer fund and ring-fenced taxable asset transfer fund (RFTATF), but
  • the interest in taxable property, in respect of which the unauthorised payment is treated as made, will represent the payment and - as an “appropriated asset” - will form part of the member’s ring-fenced transfer fund and RFTATF up to an amount equal to the amount of that payment.

There will be a taxable property unauthorised payments charge on the deemed payment up to the amount of the member’s TATF and/or RFTATF. But the amount of payment which is chargeable (the appropriated asset) will go into the member’s relevant transfer fund/TATF and ring-fenced transfer fund(s) and RFTATF (as appropriate).

So, in effect, the member’s:

  • relevant transfer fund and TATF and
  • ring-fenced transfer fund(s) and RFTATF

will not be reduced by that payment.

Rule 2

Rule 2 applies if the scheme transfers that appropriated asset (or an interest in a vehicle through which the scheme holds the interest in the taxable property indirectly), or part of it, to another pension scheme.

That transfer will be treated as a transfer of the whole, or part, of the member’s

  • relevant transfer fund and TATF or/and
  • ring-fenced transfer fund(s) and RFTATF

(as appropriate) limited to the amount of the unauthorised payment to that other scheme.

If appropriate, it will fall within the member’s TATF or RFTATF (as appropriate) under the receiving scheme.

Rule 3

Rule 3 applies if the scheme disposes of the appropriated asset (or an interest in a vehicle through which the scheme holds the interest in the taxable property indirectly), or part of it, otherwise than by transferring it to another pension scheme.

Any other property which directly or indirectly represents proceeds of either of those interests - limited to the amount of the unauthorised payment – will form part of the member’s

  • relevant transfer fund and TATF or/and
  • ring-fenced transfer fund(s) and RFTATF.

Rule 4

Rule 4 applies to crystallisation events and payments made by the scheme to, or in respect of, the member other than:

  • a transfer covered by Rule 2 or Rule 3, or
  • an unauthorised payment made by virtue of section 174A Finance Act 2004 and so covered by Rule 1.

Payment attributable to relevant transfer fund

So far as the member’s relevant transfer fund and TATF are not represented by appropriated assets:

  • where the member has a relevant transfer fund and a TATF, and the amount of the relevant transfer fund is more than the amount of the TATF, payments will - to the extent of that excess - be treated as made out of, and as reducing, their relevant transfer fund (but not their TATF), and subject thereto, and
  • such payments are made out of the member’s relevant transfer fund and TATF, and reduce (but not below nil) the amount of the relevant transfer fund and TATF transfer fund.

If there are any appropriated assets in the member’s relevant transfer fund and taxable asset transfer fund then they will be unaffected by this rule and will be treated as remaining therein.

Payment attributable to a ring-fenced transfer fund

So far as the member’s ring-fenced transfer fund and RFTATF are not represented by appropriated assets:

  • where the member has one or more ring-fenced transfer funds and a RFTATF, and the amount of the ring-fenced transfer funds is more than the amount of the RFTATF, payments will - to the extent of that excess - be treated as made out of, and as reducing, their ring-fenced transfer fund(s) (but not their RFTATF), and subject thereto, and
  • such payments are made out of the member’s ring-fenced transfer fund and RFTATF and reduce (but not below nil) the amount of the ring-fenced transfer fund and RFTATF.

If there are any appropriated assets in the member’s ring-fenced transfer fund and RFTATF then they will be unaffected by this rule and will be treated as remaining therein.

PTM113270 provides examples of when and how a member’s UK funds are reduced.

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