RPSM13101115 - Technical Pages: International: Migrant member relief: Transitional relief for individuals in respect of employer contributions

Transitional relief for individuals in respect of employer contributions

Article 17 of The Taxation of Pension Schemes (Transitional Provisions) Order 2006 provides for an employee to be exempt from tax in respect of contributions made to an overseas pension scheme by their employer in any tax year after 2005/06 as if:

1. the scheme were a qualifying overseas pension scheme and
2. the contributions were relevant migrant member contributions.

The exemption applies if the following conditions are met:

1. the employee was exempted from income tax under section 390 Income Tax (Earnings and Pensions) Act 2003 (ITEPA) (repealed from 6 April 2006) in relation to contributions made between 6 April 2005 and 5 April 2006 by an employer under the scheme,
2. 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), and
3. HMRC is satisfied that the scheme corresponds to a UK registered pension scheme.

The condition at a will still be met if there has been a block transfer after 5 April 2006 from the overseas scheme to which the employer contribution was made in respect of the individual in the 2005/06 tax year to the overseas scheme to which the employer is contributing in respect of the individual at any time after 5 April 2006.

A scheme that was regarded by HMRC as corresponding to an approved pension scheme immediately before 6 April 2006 will meet the condition at c providing that any rule changes made after 5 April 2006 (but not the aspects of the scheme's rules that have not changed) meet the test of corresponding to a registered 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.

The individual is entitled under section 308A ITEPA to exemption from an income tax charge under section 62 ITEPA if money's worth is provided to the individual by their employer's contributions (that is where the payments meet the employee's pecuniary liability). The individual is also protected by section 307 ITEPA from an income tax charge under Chapter 10 Part 3 ITEPA on any other benefit provided by those contributions.