Overseas transfers in
These FAQs are for financial advisers only. They mustn’t be distributed to, or relied on by, customers. They are based on our understanding of legislation at the date of publication.Thu Mar 15 09:39:00 GMT 2018 Back to results
Can someone transfer funds from an overseas scheme into a UK pension arrangement?(Expand content) (Minimise content)
It is possible for a transfer from an overseas pension scheme to be made into a UK pension arrangement. The transfer process for a UK pension arrangement will typically ask if the incoming transfer is being made from a UK registered pension scheme or from a ‘recognised overseas pension scheme’. Many UK schemes will only accept transfers from overseas schemes if they are recognised overseas pension schemes (ROPS). It is unlikely that a UK registered pension scheme will accept a transfer from an overseas pension scheme, even where the scheme is a ROPS, where the individual’s retirement benefits are already in payment.
The receiving UK scheme should just need confirmation that the transfer is coming from a ROPS. There is no need to provide any additional evidence such as a copy of the transferring scheme’s rules.
The transferring overseas scheme has to meet the HM Revenue & Customs (HMRC) definition for a ROPS and it’s the responsibility of the transferring scheme to confirm that their scheme meets this definition.
When a transfer in from overseas is accepted into a UK pension arrangement, the transferred fund becomes subject to UK pension tax rules regarding when benefits can be taken and what can be paid as pension benefits. It’s therefore worth looking out for any specific conditions that the transferring scheme may impose on the transfer. For example, that the receiving UK arrangement can’t pay a tax-free lump sum from the benefits transferred, that a transfer can only be made to an occupational scheme or that benefits can’t be taken until a certain age. If there are any such conditions and they may affect whether the transfer can be made or not, then this should be pointed out to the transferring scheme.
A recognised overseas pension scheme (ROPS) must meet the conditions to be an ‘overseas pension scheme’ and a ‘recognised overseas pension scheme’ set out in the relevant Regulations. These conditions are covered in HMRC’s Pensions Tax Manual at –
A transfer from a ROPS is ignored when testing the increase in benefits or contributions paid in a pension input period. If the receiving scheme is either a defined benefit scheme or a cash balance scheme then the transfer value should be subtracted from the closing value when calculating the increase in benefits over the pension input period.
If the receiving scheme is a money purchase scheme then the transfer value is ignored as they are not counted as contributions for annual allowance purposes.
A transfer received after 5 April 2006 from a ROPS that has not benefited from UK tax relief will count towards someone’s lifetime allowance when they subsequently take pension benefits from the receiving UK pension arrangement. As no UK tax relief has been received on the contributions made to the overseas scheme, it would be unfair if the transferred amount used up some or all of an individual’s lifetime allowance on transfer into a UK contract or scheme. As a result, an individual’s lifetime allowance can be enhanced by a ‘recognised overseas scheme transfer factor'. In simple terms, this was calculated as the amount of the transfer divided by the standard lifetime allowance applying at the date of transfer.
Tom transferred £300,000 into his UK personal pension from a recognised overseas pension scheme on 10 May 2016. The standard lifetime allowance for 2016/17 was £1 million, so the transfer factor would be calculated by dividing £300,000 by £1 million.
The resulting factor would therefore be 0.3. If Tom decided to take pension benefits in 2018/19 these would be tested against a lifetime allowance of £1,339,000, ie £1,030,000 plus (£1,030,000 x 0.3) rather than the standard lifetime allowance of £1,030,000.
Note - if contributions to, or benefit accrual under, an overseas pension scheme after 5 April 2006 benefitted from UK tax relief, any amount transferred has to be reduced by a ‘relevant relievable amount’ representing the value of these contributions included in the transfer value.
An individual making a claim to HMRC for a recognised overseas scheme transfer factor must do so no later than five years after 31 January following the end of the tax year in which the transfer is made. HMRC form APSS202(Opens new window) should be used for this. In practice, an enhancement factor will only need to be applied for where the total value of an individual’s benefits in the UK is likely to exceed the standard lifetime allowance. It will therefore be rare to see someone saying they have a recognised overseas scheme transfer factor when taking pension benefits from a UK pension arrangement.
When HMRC receives an APSS202 form, it will send the individual a certificate confirming the recognised overseas scheme transfer factor. This will contain, among other things, a unique reference number, the date of issue of the certificate and the date from which it is valid.
What happens when benefits are paid and an enhancement factor applies?(Expand content) (Minimise content)
If an individual applies for an enhancement factor, they can use the factor in respect of any benefit crystallisation event that takes place after the transfer is made. They will need to provide a copy of the certificate to the pension provider, or at least quote the reference number given on the certificate to them, so that they can calculate the percentage of lifetime allowance used taking into account the enhancement factor.
When transferring pension arrangements between different countries, the transferee should take financial advice in both countries to avoid possible unforeseen tax implications.
Further information on recognised overseas scheme transfer factors can be found at:
Pensions Technical Services