Treatment of pension contributions to non-UK pension schemes

Produced by Tolley in association with John Hayward

The following Employment Tax guidance note Produced by Tolley in association with John Hayward provides comprehensive and up to date tax information covering:

  • Treatment of pension contributions to non-UK pension schemes
  • Introduction
  • Corresponding relief ― to 5 April 2006
  • Migrant member relief
  • Qualifying Overseas Pension Scheme
  • Obtaining migrant member relief
  • Tax relief on employer contributions
  • Definition of relevant migrant member
  • Transitional provisions: members previously subject to corresponding relief
  • Contributions to other overseas pension schemes

Treatment of pension contributions to non-UK pension schemes

Introduction

This guidance note sets out the part of the tax regime associated with overseas pensions. It looks at how those rules operate in relation to those individuals who decide to live in the UK and continue to make pension contributions to the overseas pension scheme of which they were a member before their arrival in the UK.

The current treatment of such contributions evolved from the provisions that applied in the period to 5 April 2006. This guidance note summarises the earlier provisions before looking at the current rules in more detail.

Corresponding relief ― to 5 April 2006

Before 6 April 2006, a non-UK domiciled employee who was in receipt of earnings from overseas whilst working in the UK for a non-UK employer could remain as a member of an overseas pension scheme.

This was allowed so long as HMRC accepted that the overseas scheme ‘corresponded’ to what was then known as a UK ‘approved’ scheme. In such circumstances, tax relief in the form of ‘corresponding relief’ was available in respect of contributions made to that scheme.

In broad terms, an overseas scheme ‘corresponded’ with the UK regime if it:

  1. was established in the country where the employee either resided or worked immediately before coming to the UK, or was an international pension scheme for all expatriate employees

  2. was recognised by the relevant authorities in that country as a pension scheme

  3. provided a reasonable amount of benefits (generally considered to be a maximum pension of 70% of final salary)

  4. had as its primary purpose the provision of pension benefits

  5. provided for reasonable employee and employer contributions to the scheme in relation to the benefits to be paid

From 6 April 2006, migrant member relief replaced corresponding

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