RPSM13102210 - Technical Pages: International: Application of charges to non-UK schemes: Member payment charges and taxable property unauthorised payment charge: Tax liability

Tax liability

The charges listed in RPSM13102110 are modified by Schedule 34, where necessary, to remove tax liability from the scheme administrator and place it instead on the member to, or in respect of, whom the payment is made. But where the payment is made after the member's death the person to whom the payment is made is liable.

All individuals who are either UK resident or who have UK source taxable items are within the scope of the UK's Self-Assessment regime. A payment from UK tax-relieved scheme funds under a relevant non-UK scheme would be deemed to be a payment from a UK source. So, wherever resident, individuals who are liable to a member payment charge will need to declare that on their Self-Assessment return for the tax year in which the member payment charge arises. If a member has not been served with a return they are bound by the normal obligation to notify HMRC of their chargeability to UK tax.

The liability of a transfer member of a relevant non-UK scheme to any charges arising by virtue of Schedule 34 would not be affected if the scheme were to cease to be a qualifying recognised overseas pension scheme.

Most of the member payment charges will not be within the scope of, and will not be exempted or overridden by, any of the UK's double taxation arrangements. Nor will the taxable property unauthorised payments charge (see RPSM04301100) be subject to double taxation agreements. That is because they are not charges on income and so do not come within any of the articles in the treaties. The member payment charges that arise under section 636B and C (see RPSM04101130 and RPSM04101140) are exceptions to this rule. As they are charges on pension income they are relievable under those of the UK’s double taxation agreements that provide for residence State taxation of such income.

However, where an individual is subject to a member payment charge of a type listed in RPSM13102110 they can receive credit for foreign taxes paid. The amount of any liability to UK tax imposed on that individual will be reduced by the amount of any tax paid in respect of that payment under the law of any country or territory outside the UK.

Should that individual pay the member payment charge, but then pay tax in respect of the payment from the scheme at a later date under the law of any country or territory outside the UK, an appropriate adjustment will be made in the individual's liability to tax. A discharge or repayment of UK tax will be made.

There are no specific rules dealing with benefits expressed in a foreign currency, but where a member payment charge arises it would be acceptable to calculate the tax payable by converting the benefits payment into sterling using the spot rate for the date of the payment.

Where an individual is liable to a member payment charge on a lump sum payment from a relevant non-UK scheme no other tax liability will arise on the payment. As lump sums paid from overseas pension schemes which are referable to a member's UK tax-relieved scheme funds will be dealt with under Schedule 34 section 636A will apply to prevent any other liabilities. (Lump sums paid from overseas pension schemes which are not referable to a member's UK tax-relieved scheme funds will be chargeable under section 394, in which case no other tax liability will arise.)

Where an individual is liable to a member payment charge on a pension payment from a relevant non-UK scheme section 579A(2) of the Income Tax (Earnings and Pensions) Act 2003 will prevent an income tax charge applying as well. The pension payments will not be taxable pension income for the purposes of section 579B ITEPA 2003.

Extra-Statutory Concession A10

Extra-Statutory Concession A10 provides an employee with relief from income tax on a lump sum received from an overseas pension scheme to the extent that it relates to overseas service (broadly, to duties undertaken while the individual was not UK resident). General guidance on this concession can be found in the Employment Income Manual (see EIM15062).

The effect of the concession continues following the introduction of the new pension scheme tax regime on 6 April 2006. However, it does not apply to any benefits chargeable under Schedule 34. It is also interpreted in the following ways:

• “overseas retirement benefits scheme” and “overseas provident fund” will be interpreted as employer-financed retirement benefit schemes (as defined in section 393A ITEPA 2003),and
• “relevant benefits” will be defined in accordance with section 393B ITEPA 2003.