RPSM13101110 - Technical Pages: International: Migrant member relief: Transitional relief for individuals on own contributions

Transitional relief for individuals on own contributions

Paragraph 51 of Schedule 36 provides for relief under section 355 Income Tax (Earnings and Pensions) Act (ITEPA) 2003 on contributions made by an individual to an overseas pension scheme in any tax year after 2005-2006 if:

1. they received "corresponding relief" on contributions that they made to that scheme in the 2005-2006 tax year,
2. HMRC is satisfied that the conditions in section 355 ITEPA 2003 are met, and
3. the scheme manager provides the same information about the individual's benefit crystallisation events as would be required if the individual was receiving migrant member relief (see RPSM13101060).

The condition at a will still be met if after 5 April 2006 there has been a block transfer from the overseas pension scheme to which the individual contributed in the 2005-2006 tax year to the overseas pension scheme to which they are contributing at any time after 5 April 2006. That is to enable individuals to continue receiving relief if they are required to transfer to a new overseas pension scheme because of a company take-over or reorganisation. The new scheme must correspond to a UK registered pension scheme.

So far as the condition at b is concerned, this should mean that an individual who received "corresponding relief" in the 2005-2006 tax year can receive transitional relief in any subsequent tax year. A scheme that was regarded by HMRC as corresponding to an approved pension scheme immediately before 6 April 2006 will still be accepted as corresponding in subsequent tax years. But that is subject to the condition that any rule changes made after 5 April 2006 (but not the aspects of the scheme's rules that have not changed) must meet the test of corresponding to a registered pension scheme. Scheme managers do not have to apply to HMRC to determine whether or not that test is met where such a rule change is made. However, they should notify HMRC of rule changes.

Where an employee is resident but not ordinarily resident (R/NOR) in the UK, and has foreign earnings that are not taxable in the UK because the earnings have not been remitted here, transitional relief on their contributions to a corresponding scheme will be calculated on a different basis from that which applied previously to corresponding relief. A deduction will be allowable on contributions made after 5 April 2006 up to the amount of their relevant UK earnings which are chargeable to UK income tax for the tax year. It will therefore no longer be necessary to apportion a R/NOR employee’s contributions between taxable and non-taxable earnings from the same employment. This will be in line with migrant member relief.

Where an individual has a right to retire earlier than age 55 under their corresponding scheme's rules they will retain that right provided it was in place before 10 December 2003. The minimum pension age for corresponding schemes established between 10 December 2003 and 5 April 2006 will be age 55 for members who retire after 5 April 2010. Individuals who join a corresponding scheme after 5 April 2006 will not be eligible for transitional relief, but they will receive migrant member relief if the relevant conditions are met.