International: UK tax charges on non UK schemes: the lifetime allowance charge and non UK schemes: relevant relieved amounts
The relevant relieved amount
Paragraph 14, Schedule 34 Finance Act 2004
Paragraph 14 schedule 34 Finance Act 2004 provides for an overall limit on the total amount of the benefits under a relieved non-UK pension scheme that may be tested against an individual’s lifetime allowance. This limit is called the ‘relevant relieved amount’.
The relevant relieved amount relating to the individual under the scheme is the total of:
- the total pension input amounts that apply by virtue of schedule 34 (PTM113320 to PTM113340 refer) and have arisen in relation to that scheme in each tax year after 5 April 2006 in respect of the individual, and
- the pension input amount that would have applied by virtue of schedule 34 if the period beginning on 6April in the tax year in which the benefit crystallisation event (BCE) occurs and ending immediately before the benefit crystallisation event was a full tax year.
When making this calculation you must assume that section 229(3) Finance Act 2004 does not apply. This section provides that there is no pension input amount for a tax year if, before the end of the tax year, the individual satisfies the severe ill health condition or has deceased.
At each BCE, the amount crystallised is reduced by any excess over what is termed ‘the untested portion’ of the relevant relieved amount. The reduced figure is the amount that crystallises at the BCE and that is tested against the individual’s lifetime allowance.
The untested portion
The untested portion is the total relevant relieved amount less all the amounts previously crystallised in respect of the individual under the relieved non-UK pension scheme.
At the first benefit crystallisation event, the amount crystallised is reduced by any excess over the relevant relieved amount. If the member has a second BCE in that relieved non-UK pension scheme, the amount crystallised is reduced by any excess over the relevant relieved amount less the amount crystallised at the previous BCE. This process will continue for any subsequent crystallisations of the member’s benefits under the scheme until the relevant relieved amount is zero. After that there is no amount to test against the individual’s lifetime allowance.
On 6 January 2007 Carmine became a relieved member of a relieved non-UK pension scheme. That is the only scheme of which he is a member. Carmines crystallises some of his scheme benefits on 6 July 2012, at which point he has been a relieved member of the relieved non-UK pension scheme for five and a half years. This is Carmine’s first benefit crystallisation event from the scheme and the amount crystallised is £300,000.
Carmine’s total pension input amounts for the previous six tax years (2006-2007 to 2011-2012) are £400,000 and his pension input amount for the period from 6 April 2012 to 6 July 2012 is £15,000.
At this point Carmine’s relevant relived amount is £415,000 and this is his first BCE Carmine’s untested portion is also £415,000.
As the amount crystallised does not exceed Carmine’s untested portion the amount crystallised is not reduced and so the whole of the crystallised amount of £300,000 is tested against his lifetime allowance of £1.5 million for 2012-13. So he is not liable to a lifetime allowance charge.
Two years later on 6 July 2014 Carmine has another BCE. The amount crystallised is £150,000.
Carmine has had no pension input amounts under the scheme since his previous BCE.
At this point Carmine’s relevant relieved amount is £415,000 and his untested portion is £115,000 (£415,000 less the previous £300,000 BCE).
The £150,000 crystallised is reduced by £35,000, the excess over the untested portion of his relevant relieved amount, so only £115,000 is tested against Carmine’s unused lifetime allowance. For the year 2014-15 the lifetime allowance is £1.25 million. Carmine’s total BCEs are less than his lifetime allowance, so again he is not liable to a lifetime allowance charge.
A year later on 6 July 2015 Carmine has another BCE, taking benefits worth £50,000. Carmine’s pension input amount for that year is also nil.
At this point Carmine’s relevant relieved amount is £415,000 and his untested portion is £0 as the previous BCEs have used up all Carmine’s relevant relieved amount.
As there is no longer any untested portion of Carmine’s relevant relieved amount the amount crystallising is reduced to nil.