Taking benefits from a non-UK pension scheme

By Tolley

The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

Taking benefits from a non-UK pension scheme
Introduction
General principles
Taking benefits from UK tax-relieved funds transferred into a QROPS
The member payment and reporting provisions
Payments from a QROPS and their taxation
Taxation of UK pensions received by non-UK residents
Payments from a QNUPS and their taxation

Introduction

Other guidance notes in this sub-topic have looked at how transfers of UK tax-relieved funds may be made to Qualifying Recognised Overseas Pension Schemes (QROPS) and how contributions can be made to other forms of overseas pension schemes including Qualifying Non-UK Pension Schemes (QNUPS). This guidance note focuses on the tax treatment of benefits from a QROPS or QNUPS.

General principles

It would be logical to think that the basis on which benefits can be taken from a non-UK pension scheme would be dependent upon the rules of that particular scheme and the legislation of the jurisdiction in which the pension scheme is arranged.

However, in relation to transfers of UK tax-relieved pension funds to a QROPS, in order for the overseas scheme to be recognised by HMRC as a QROPS, certain restrictions must be accepted. These restrictions include provisions on how the overseas pension scheme recognised as a QROPS may use UK tax-relieved funds transferred into it for the purpose of providing benefits.

The structure of an overseas pension scheme, which enables such a scheme to be regarded as a QNUPS, has the added benefit of exempting assets held within it following the member’s death from UK inheritance tax.

In order to satisfy the requirements to be regarded as a QNUPS, there are rules in terms of benefit provision.

Taking benefits from UK tax-relieved funds transferred into a QROPS

The way the legislation associated with QROPS works means that for the first five complete and consecutive years of non-UK residence, the fund held within a QROPS must be used to provide benefits in the same way as would be permitted under UK legislation. This is because the fund effectively operates as if it was a UK-registered pension scheme. If this key condition is not adhered to then tax charges