Overseas pension schemes - the basics

In certain circumstances HM Revenue & Customs (HMRC) can give tax relief on pension saving contributions to, and charge tax on payments from, an overseas pension scheme. Transferring pension savings from a UK scheme to an overseas scheme can also generate UK tax charges.

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UK tax relief for overseas pension schemes

If you're working in the UK but paying into an overseas pension scheme you may be able to get tax relief on those contributions. This could be because the overseas pension scheme meets certain conditions or due to a double taxation agreement.

Tax relief on contributions to an overseas pension scheme

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Transfers to overseas pension schemes

You can transfer your pension savings from a registered pension scheme to an overseas pension scheme. However, if the scheme receiving the transfer isn't a qualifying recognised overseas pension scheme (QROPS), the transfer will be an unauthorised payment - both you and the UK scheme administrator will have to pay tax on the transfer.

Transferring your pension savings into an overseas scheme

Which schemes can be a qualifying overseas pension scheme (QROPS)

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UK tax charges for overseas pension schemes

UK tax can be charged on payments made by an overseas pension scheme that holds pension savings that got UK tax relief.

If tax relief was given to contributions paid into an overseas pension scheme or the scheme is a QROPS that received a transfer from a UK scheme the following payments will be subject to UK tax:

  • unauthorised payments
  • winding up lump sum payments
  • small lump sum payments - sometimes called 'trivial' lump sums
  • serious ill health lump sums paid to a member age 75 or older
  • short service refunds
  • certain lump sums paid following the death of a member

Tax on these payments will only be due if the member was UK resident at the time of the payment, earlier in the same tax year or in any of the five previous tax years. The exception to this rule is if the unauthorised payment was due to investment in taxable property - more in the link below.

The annual allowance and lifetime allowance rules will apply if tax relief was given on contributions to an overseas pension scheme.

More about UK tax charges on pension scheme payments

Find out more about investing in taxable property

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When you may have an enhanced lifetime allowance

You may be able to get a larger lifetime allowance if you've built up pension savings after 5 April 2006 and either:

  • they were built up in an overseas pension scheme that didn't qualify for UK tax relief and you've now transferred them to a UK scheme
  • they were built up in a UK scheme when you didn't qualify for tax relief

The enhanced lifetime allowance recognises that some of your pension savings didn't qualify for UK tax relief. You'll be able to build up a larger pension pot before you have to pay the lifetime allowance tax charge.

You'll need to apply to HMRC to get a larger lifetime allowance by completing form APSS 202 Enhanced Lifetime Allowance (International). You should send it to HMRC within five years from 31 January following the end of the tax year in which the event entitling you to a larger lifetime allowance took place. For example, if you transferred benefits into a UK scheme from an overseas scheme on 5 August 2009 (2009-10 tax year) the closing date to apply for a larger lifetime allowance would be 31 January 2016.

Understanding the lifetime allowance for pension schemes

Form APSS 202 - Enhanced Lifetime Allowance (International)

Lifetime allowance enhancement after a transfer from an overseas pension scheme

Lifetime allowance enhancement if you didn't qualify for UK tax relief

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Overseas membership of a registered pension scheme

A pension scheme set up outside the UK can become a registered pension scheme if it meets the normal registration requirements.

You don't have to live in the UK to be a member of a registered pension scheme. Any pension you get will be subject to tax unless it's exempt from UK tax under a double taxation agreement.

Pensions specific tax charges such as the annual allowance, lifetime allowance and unauthorised payments charge normally won't apply if you've never been UK resident and have never benefited from UK tax relief on contributions to the scheme.

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More useful links

Double taxation agreements

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