With increasing numbers of UK citizens choosing to live and work abroad and ever-greater numbers of foreign nationals coming to live in the UK, the Government is relaxing the tax rules applying to transfers of pensions to and from the UK.
From 6 April 2006, there have been no restrictions on residence for tax purposes for members of UK pension schemes. Also, both UK residents and non-residents will be able to transfer their pension schemes abroad without a tax charge, subject to not exceeding the Lifetime Tax Allowance (LTA). The LTA is the maximum lifetime amount of pension contribution on which tax relief can be claimed and for 2006/7 is set at £1.5m. Transfers in excess of the LTA will attract a tax charge as will other transfers if the pension is transferred to a fund which is not classified as a Qualifying Recognised Overseas Pension Scheme.
There are no restrictions on the transfer of foreign pension funds into UK-registered pension schemes. Members of non-UK schemes who have earnings in the UK can claim ‘migrant member relief’ to obtain tax relief in the UK on their pension contributions. Employers’ contributions will also qualify for tax relief. In some circumstances, transfers in excess of the LTA can be exempted from a tax charge, but claims for exemption must be made before 5 April 2009.
For more information, or to obtain the relevant forms, see www.hmrc.gov.uk/pensionschemes
or telephone 0115 974 1600.
The EU claims that pension scheme portability will free workers from worry over the possible loss of pension rights by moving to an employer in another EU country. The recent ‘Portability of Pensions’ Directive is designed to deal with issues such as the acquisition of pension rights, qualifying periods for joining pension schemes, conditions relating to dormant pension schemes and transferability of funds between schemes.