Finance Act 2004 Schedule 34
SCHEDULE 34: Non-UK schemes (QROPS): application of certain charges
Schedule 34 provides for charging provisions to apply in certain circumstances to members of non-UK pension schemes that are not registered pension schemes. Whilst not exclusively; this relates to QROPS.
This is necessary where overseas pension funds contain funds that have benefited from UK tax relief. Where a pension transfer to a QROPS has or is about to take place. In this case we are primarily looking at cases where a UK fund is transferred overseas to a QROPS (ie the ‘transfer members’ referred to in the legislation).
There are numerous provisions that apply and the various charges are referred to as ‘member payment charges’.
The legislation specifically states in section 2:
‘…The member payment provisions do not apply in relation to a payment made (or treated by this Part as made) to or in respect of a relieved member or transfer member of a relevant non-UK scheme (QROPS) unless the member—
(a) is resident in the United Kingdom when the payment is made (or treated as made), or
(b) although not resident in the United Kingdom at that time, has been resident in the United Kingdom earlier in the tax year in which the payment is made (or treated as made) or in any of the five tax years immediately preceding that tax year…’
The member payment provisions are defined as ‘…the provisions of this Part relating to payments made (or treated by this Part as made) to or in respect of a member of a registered pension scheme…’ These payments now being under a QROPS.
The HMRC manuals also specifically state:
‘…the member payment charges apply only if:
• they are tax resident in the UK at the time the payment is made (or is treated as made), or
• although not tax resident in the UK, they have been resident in the UK earlier in the tax year in which the payment is made (or is treated as made), or in any of the five tax years immediately preceding that tax year…’
Given that the member payment charges include:
· the unauthorised payments charge,
· the unauthorised payments surcharge,
· the short service refund lump sum charge,
· the special lump sum death benefits charge
It is clear that these are all subject to the residence requirement as above.
The various sections (ie Section 3-7) generally apply as follows:
Section 3 is stating that no charges above apply unless the payment from the overseas scheme is from the element of the fund that has had UK tax relief
Section 4 is a similar provision but for transferred schemes
Section 6 is applying the short service refund lump sum charge etc
Section 7 simply allows HMRC to vary the provisions
A pension transfer to a QROPS will not be subject to member payment charges or taxation from the UK so long as the member or individual is non UK resident for 5 years plus.
It should be noted that tax liabilities may exist in the jurisdiction in which you are resident on taking cash sums and/or income. Advice from Gerard Associates Ltd or a resident tax professional should always be sought.
Releasing your pension fund via a QROPS as cash and income is a common tool for many expats. Whilst the UK will not impose any tax charges, UK HMRC still can request information about your pension fund under the exchange of information rules of international double taxation agreements. HMRC are likely to send this information to the tax authorities where you are resident.
Declaring the appropriate tax is always the best policy.
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