The annual allowance rules apply to a non-UK pension scheme when you or your employer get tax relief on the contributions paid to the scheme because you are eligible for any of
The last of these categories applies only if the non-UK pension scheme meets the conditions to be regarded as an 'overseas pension scheme' within the meaning of UK tax law. Broadly, the scheme has to be regulated and recognised for tax purposes as a pension scheme in the country in which it is established. Also, the scheme must not be a registered pension scheme.
The term 'overseas pension scheme' is used throughout this guidance to refer to any scheme falling within any of the categories mentioned above.
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The annual allowance applies to the total amount of your pension savings for all overseas pension schemes of which you are an active member (that is, ones you or your employer still contribute to or one where your promised benefits are still increasing).
The annual allowance applies to the total amount of your pension savings for all registered and overseas schemes of which you are an active member (that is, ones you or your employer still contribute to or one where your promised benefits are still increasing).
The PIP for arrangements you have under your overseas pension scheme will be the same as the UK tax year (6 April to following 5 April).
No. The PIP will always be the same as the UK tax year (6 April to following 5 April).
No.
The PIP for your overseas pension scheme will always be the same as the UK tax year (6 April to following 5 April).
A PIP for a registered pension scheme does not have to be exactly the same as the UK tax year. You can also have more than one PIP. For example, you could have a different PIP for each registered pension scheme that you are a member of.
Find out more about pension input periods for registered pension schemes
The Transitional Rules do not apply to your pension savings in an overseas pension scheme. This is because the Pension Input Period (PIP) for your overseas scheme will always be the same as the UK tax year (6 April to following 5 April).
For 2010-11 the maximum pension savings you could have in the PIP for your pension savings under overseas pension savings without paying an annual allowance charge was £255,000. Remember, you must also include any pension savings you had in a registered pension scheme as well where the PIP for the registered pension scheme ended in 2010-11.
Find out more about the Transitional Rules for registered pension schemes
The basic method for calculating your pension input amount to an overseas pension scheme is the same as for calculating a pension input amount for a registered pension scheme.
Find out more about calculating pension input amounts in registered pension schemes
But there are some additional steps built in to the method of calculating your pension input amount to your overseas pension scheme to broadly identify the level of UK tax relief being given.
An adjustment is made to the calculation of the pension input to remove a portion that relates to employment duties that are not taxed in the UK. It works by applying a fraction to your pension input amount, 'TE/EI'. 'EI' is the total amount of your Employment Income in the year and 'TE' (Taxable Earnings) is so much of 'EI' as is UK taxable income.
The way the fraction applies depends on the type of your arrangement in the overseas pension scheme.
Find out more about how to calculate your pension input amount to an overseas pension scheme
How you can convert your pension input amount to the sterling equivalent will depend on the type of pension arrangement you have under the overseas pension scheme.
The opening and closing value of your pension input amount can be converted to the sterling equivalent by using
The chosen method must be used on a consistent basis.
The PIP for arrangements you have under your overseas pension scheme will be the same as the UK tax year (6 April to following 5 April).
For example, if you are calculating the pension input amount for tax year 2011-12 you can use the spot rate for 5 April 2012.
If you know the date on which each contribution was made then you should use the spot rate for that date of payment or add up each contribution and convert the total amount using the spot rate for
The chosen method must be used on a consistent basis.
However, if you do not know the exact date on which each contribution was paid you can use the same spot rate that you used to convert the salary on which the contribution was based. That salary may have been converted using the spot rate for the dates on which it was received or another method that HMRC has agreed in your particular case.
During the UK tax year 2011-12 Michael is a member of an overseas pension scheme which is a money purchase scheme. Each month Michael has paid a contribution of 7% of his salary and his employer has paid a contribution of 8%.
To work out his pension input amount for 2011-12 he uses the spot rate for the dates on which his salary was received during the tax year. Using this, Michael's salary on which both his and his employer's contributions were based is £180,000.
Based on £180,000, Michael's pension contributions were £12,600 (£180,000 x 7%) and his employer's contributions were £14,400 (£180,000 x 8%).
Michael received UK tax relief on all of his contributions so the full amount of £12,600 is included as part of his pension input amount.
The fraction 'TE/EI' is applied to the employer contribution of £14,400 to determine how much of the employer contribution is included as part of Michael's pension input amount.
Michael has total income (EI) from his employment with the employer in that tax year of £180,000 (excluding the employer contribution). Of that income £150,000 is UK taxable earnings (TE).
The appropriate fraction (TE/EI) is applied to the employer contribution
£150,000/£180,000 x £14,400 = £12,000.
His pension input amount in respect of this scheme is the total of Michael's UK tax relieved contributions (£12,600) and the appropriate fraction of his employer's contributions (£12,000) = £24,600.
You can carry forward any unused annual allowance that you have if you are a member of an overseas pension scheme. How much unused annual allowance you can carry forward to a particular tax year will depend on your circumstances.
You can carry forward unused annual allowance but only if during one or more of those years you were a member of a registered pension scheme or a member of another overseas pension scheme in respect of which you got UK tax relief for the year concerned. Otherwise you will not be able to carry forward any unused annual allowance.
Where you have been saving in a registered pension scheme in one or more of those previous three tax years, the amount of unused annual allowance that can be carried forward from that year is calculated in the same way as for a registered pension scheme generally.
You could qualify for carry forward if you have been a member of another overseas pension scheme for any of the previous three tax years and you got UK tax relief in respect of that scheme for the year concerned. Then you can carry forward unused annual allowance from that earlier year on the same basis as a member of a registered pension scheme generally. But remember, the way your pension input amount is calculated for that tax year in respect of the overseas scheme is modified by the application of the 'TE/EI' fraction.
During the tax year 2008-09 Anders changed jobs. He left the UK Branch of ABC and returned home to work for A N Other Overseas Employer. As a consequence he left the ABC Overseas Pension Scheme and joined the A N Other Overseas Employer Pension Scheme.
Anders was a member of the A N Other Overseas Employer Pension Scheme for all of the next two tax years - i.e. 2009-10 and 2010-11 and was not a member of any other pension scheme during that period.
Then, during the tax year 2011-12 Anders changed jobs again. As a consequence he left the A N Other Overseas Employer Pension Scheme and joined the XYZ Overseas Pension Scheme.
In the same tax year Anders moved to the UK Branch of XYZ and remained a member of the XYZ Overseas Pension Scheme. His total pension savings for 2011-12 in that pension scheme were £70,000.
The XYZ Overseas Pension Scheme is an overseas pension scheme and Ander's pension input amount (after application of the 'TE/EI' fraction) is £65,000.
In the previous three tax years his pension savings were:
2010-11 - £25,000 (to the A N Other Overseas Employer Pension Scheme)
2009-10 - £30,000 (to the A N Other Overseas Employer Pension Scheme)
2008-09 - £5,000 (to the ABC Overseas Pension Scheme, as modified by 'TE/EI') and
- £10,000 (to the A N Other Overseas Employer Pension Scheme)
The A N Other Overseas Employer Pension Scheme was not an overseas pension scheme for any of the tax years 2008-09, 2009-10 and 2010-11 because neither Anders nor his employer got any UK tax relief on the contributions paid to the scheme during any of those tax years. Also the pension scheme was not a registered pension scheme.
The ABC Overseas Pension Scheme was an overseas pension scheme for the tax year 2008-09.
For 2011-12 Anders can carry forward unused annual allowance of £45,000 only from the tax year 2008-09 and he cannot carry forward any unused annual allowance from tax year 2009-10 or 2010-11.
For later tax years, Anders cannot carry forward any unused annual allowance from tax year 2009-10 or 2010-11.
Find out more about carry forward of unused annual allowance
If you have been a member of the overseas pension scheme for any of the previous three tax years you can carry forward unused annual allowance from those earlier years. The basis on which the unused annual allowance is calculated depends on whether the annual allowance rules applied to you in those earlier years i.e. did you qualify for UK tax relief in those years.
For a year in which the annual allowance rules apply, you can carry forward unused annual allowance on the same basis as a member of a registered pension scheme. But remember the way your pension input amount is calculated for that tax year is modified by the application of the 'TE/EI' fraction.
If you had been a member of the scheme for any of the previous three tax years but the annual allowance rules did not apply to you for any year (i.e. you did not qualify for UK tax relief for that year) you can still carry forward unused annual allowance. However, for the tax year in question, you do not apply the 'TE/EI' fraction to your pension input amount.
You may not be able to carry forward unused annual allowance from one or more of the previous three tax years if you were not a member of your current overseas pension scheme during any part of that earlier tax year, for example because you were in a different pension scheme of your current employer or you were in a pension scheme of another employer.
If you were in a different pension scheme in an earlier tax year you will be able to carry forward only if that other pension scheme was either a registered pension scheme or was, itself, an overseas pension scheme because you got UK tax relief for the year concerned in respect of that scheme.
Ivan is a member of the XYZ Overseas Pension Scheme and has total pension savings of £65,000 for the 2011-12 tax year in that pension scheme.
The XYZ Overseas Pension Scheme is an overseas pension scheme and Ivan's pension input amount (after application of the 'TE/EI' fraction) is £60,000.
In the previous three tax years his pension savings were:
2010-11 - £45,000 - to the XYZ Overseas Pension Scheme
2009-10 - £30,000 - to the XYZ Overseas Pension Scheme
2008-09 - £25,000 - to the A N Other Overseas Employer Pension Scheme
For 2010-11 Ivan qualified for UK tax relief in respect of this pension savings in the XYZ Overseas Pension Scheme and his pension input amount for that year after application of the 'TE/EI' fraction was £42,000.
The annual allowance rules did not apply to Ivan's 2009-10 pension savings as he did not get any UK tax relief on those pension savings. Because of this there is no adjustment by the 'TE/EI' fraction to his pension savings of £30,000 for that year.
Also the annual allowance rules did not apply to Ivan's pension saving under the A N Other Overseas Employer Pension Scheme as Ivan did not get any UK relief in respect those savings.
If the annual allowance for each of those years was £50,000 Ivan has unused annual allowance of £20,000 and £8,000 from two of those three tax years, being:
2010-11 - £8,000
2009-10 - £20,000
2008-09 - nil (nothing can be carried forward even though pension savings are less than £50,000)
This means Ivan has £28,000 (£20,000 + £8,000) unused annual allowance to carry forward.
Together with the £50,000 annual allowance for the tax year 2011-12 Ivan can have pension saving of £78,000 in 2011-12 without the annual allowance charge being due.
Ivan's pension saving for the 2011-12 tax year is less than his available annual allowance. Ivan does not have to pay the annual allowance charge.
Ivan has used up the £50,000 annual allowance for the current tax year and £10,000 unused annual allowance from 2009-10. Ivan still has £10,000 unused annual allowance from 2009-10 to carry forward to the next tax year. Note: there is a strict order of the use of unused annual allowance. You can find out more following the link below.
Ivan has £18,000 unused annual allowance that he can carry forward to next tax year.
Find out more about carry forward of unused annual allowance
The pension input period (PIP) for your arrangement under the overseas pension scheme will be the same as the UK tax year (6 April to following 5 April).
If the information on which to base a calculation is available to you, it should be used. It is not appropriate to base a calculation on, say, the existing scheme's calendar year just because it is simpler. If it is impractical to work out your defined benefit accrual over the period of the tax year it would be possible to use the scheme year, provided the use of the scheme year is reasonable and you use this consistently.
For example, if the scheme year ends on 31 March it would be acceptable to use the increase in pension rights over that scheme year as the basis for calculating the pension input amount for a particular tax year. This is provided that no significant event occurs in the period beginning on 1 April and ending on 5 April, such as a discretionary increase to the benefit rights or the payment of benefits.
If the scheme year ends earlier than 31 March, for example on 31 December, you may be able to work out your pension input amount based on the change in your salary and increase in pensionable service over the tax year if your defined benefit accrual is based on your salary and pensionable service with your employer.
Mary is a member of an overseas pension scheme. The scheme provides defined benefits on an accrual rate of 1/50th for each year of service. Benefit statements are based on a scheme year ending on 31 December.
At the latest benefit statement on 31 December 2011 Mary had completed 10 years of pensionable service based on a current pensionable salary of £100,000.
On 1 January 2012 Mary starts work in her employer's London office.
By 5 April 2012 Mary's pensionable salary had increased to £105,000. Mary's pension input amount is the greater of the increase in her pension saving over the PIP (the tax year) as adjusted by the fraction 'TE/EI' and her contributions to the pension scheme in the tax year that had UK tax relief.
First the pension input amount is worked out in the same way as for a registered pension scheme. This is the difference between the opening value and the closing value of Mary's promised benefits.
The opening value of Mary's benefit rights is based on her pensionable service by the start of the tax year 2011-12, which is 9 years and 3 months, and the pensionable salary of £100,000, as used in her latest benefit statement of 31 December 2011.
Mary's opening value is calculated as:
1. find amount of annual pension
9.25/50 x £100,000 = £18,500
2. multiply annual rate of pension by flat factor of 16
£18,500 x 16 = £296,000
3. increase by CPI (Consumer Price Index) or, if available, an alternative overseas measure equivalent to CPI (3% used for illustrative purposes)
£296,000 x 1.03 = £304,880
Mary's opening value is £304,880.
The closing value of Mary's benefit rights is based on her pensionable service by the end of the tax year 2011-12, which is 10 years and 3 months, and the pensionable salary by that time of £105,000.
Mary's closing value is calculated as:
1. find amount of annual pension
10.25/50 x £105,000 = £21,525
2. multiply annual rate of pension by flat factor of 16
£21,525 x 16 = £344,400
Mary's closing value is £344,400.
The difference between the closing value and the opening value is £39,520.
The fraction 'TE/EI' is then applied to the amount of £39,520. This adjusted amount is then compared with amount of Mary's pension contributions to the pension scheme in the tax year that had UK tax relief with the greater amount being used as Mary's pension input amount for the PIP (the tax year 2011-12).
You can use an overseas equivalent to the Consumer Prices Index (CPI) provided that alternative index in the movement of consumer prices is maintained, or officially recognised, by the government of the country or territory in which your overseas pension scheme is established.
If there is no such equivalent index you should use CPI instead.
Find out more about how to calculate your pension input amount to an overseas pension scheme
