Currently UK residents in receipt of overseas pension income enjoy a reduction in the taxable amount of 10% of the total pension (section 615 schemes).
Also, where an individual becomes non-UK resident and transfers a UK pension fund to a qualifying overseas jurisdiction, that individual may take a lump sum payment from the fund after 5 years without incurring a UK tax liability.
There are several changes being proposed in this area although there has been little detail provided as yet. It is proposed that with effect from, probably, April 2017 the 10% deduction for overseas pension schemes will be abolished such that all pension receipts by UK residents will be subject to tax on the full amount.
Individuals who have received UK tax relief on contributions to their pension fund and subsequently become non-UK resident with a view to accessing their pension funds, potentially tax free after 5 years overseas, will now have to wait a further 5 years as the time limit is being raised to 10 years from the year of departure. The transfer is usually carried out by an HMRC approved overseas scheme to another vehicle (such as qualifying non-UK pension scheme), before final distribution to the individual.
Further pension proposals are:
- To align the treatment of UK and offshore pensions with a view to taxing them in the same way, and
- To update the criteria for overseas pension schemes to qualify as recognised overseas pension schemes for UK tax purposes (QROPS)
A consultation document is to be issued with regards to these changes.
Any individual currently in receipt of an overseas pension will now be taxed on the full amount they are entitled to each year.
Individuals who have moved their pension schemes overseas with a view to accessing them tax free in the near future will need to wait a further 5 years than would previously have been expected.
Another aspect that is under review is the money purchase annual allowance (MPAA). The MPAA is the amount an individual can contribute to their pension scheme and still obtain tax relief after they have commenced accessing their pension savings. Currently this limit is £10,000, however, the Government will issue a consultation document as to the reduction of this allowance to £4,000 a year. It is the Government’s view that individuals aged 55+ should enjoy double pension tax relief on recycled contributions.