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.

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It’s possible for a transfer from an overseas pension scheme to be made into a UK pension arrangement, although it’s worth pointing out that some UK schemes will only accept transfers from overseas schemes if they are recognised overseas pension schemes (ROPS). If that’s the case, 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.

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 –

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, or 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.

The type of benefits available from the transferred funds will also depend on whether they wholly, or partly, represent benefits that have already come into payment under the overseas pension scheme. See the ‘What if benefits are in payment?’ section below for more details.

A transfer from an overseas pension scheme 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 amount of benefits funded by the transfer payment (defined benefit) or the amount of increased rights funded by the transfer payment (cash balance) should be deducted 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 from an overseas pension scheme will count towards an individual’s lifetime allowance when benefits are subsequently taken from the receiving UK pension arrangement. Where the transferring arrangement meets the HMRC definition of a ROPS, then an individual can apply to HMRC for an enhancement to their lifetime allowance (note – this option isn’t available where a transfer is made from a scheme that doesn’t meet the ROPS definition). The enhancement factor is referred to as a ‘recognised overseas scheme transfer factor’. In simple terms, this is calculated as the amount of the transfer divided by the standard lifetime allowance applying at the date of transfer.

Example

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 2019/20 these would be tested against a lifetime allowance of £1,371,500, (ie, £1,055,000 plus (£1,055,000 x 0.3)) rather than the standard lifetime allowance of £1,055,000.

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.

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.

Where benefits are in payment in the transferring overseas pension scheme (that would have represented either a scheme pension or drawdown pension if that scheme was a UK registered pension scheme), then it should be treated as a crystallised benefit in the receiving UK pension arrangement. This means:

  • A tax-free lump sum cannot be paid when the replacement scheme pension is set-up or when the funds are designated to provide a replacement drawdown pension in the receiving UK pension arrangement.
  • If the form of drawdown under the transferring overseas scheme is the equivalent of capped drawdown, the drawdown under the receiving UK pension arrangement must also be capped drawdown unless an individual chooses to convert to flexi-access drawdown.

If the individual making the transfer is under age 75, the designation to provide a replacement drawdown pension or the replacement scheme pension will be a benefit crystallisation event (a BCE1 or BCE2 respectively). Where the transfer is coming from a ROPS, and there is the possibility of an individual’s lifetime allowance being exceeded, they may be able to apply to HMRC for an enhancement factor called a ‘recognised overseas scheme transfer factor’. Please see the section above titled ‘What effect is there on the lifetime allowance?’ for more information.

In practice, some UK schemes will not accept transfers from overseas schemes where the benefits are already in payment.

You may encounter situations where an individual transferred funds out of the UK to a QROPS and then wants to transfer them back again at a later date to a different UK pension arrangement. This should be a fairly rare occurrence, because transfers from a UK registered pension scheme to a QROPS are only expected to take place where an individual intends to leave the UK permanently.

The two examples below show how this should work depending on whether the funds transferred back into the UK are uncrystallised or crystallised:

Transfer back into the UK of uncrystallised funds

Anne moves abroad to live and work and transfers a fund of £1m from a registered pension scheme to a QROPS in the 2017/18 tax year, when the standard lifetime allowance (SLA) was £1m. The transfer used up 100% of the SLA through a BCE 8 and she had not had any BCEs prior to that. 

The funds grow to £1.2m in the QROPS through further contributions and investment returns. Anne’s circumstances change unexpectedly and she decides to return to the UK in 2018/19 and transfers her funds back into a UK pension arrangement during that tax year. The transferring scheme meets the conditions to be a ROPS so Anne can apply to HMRC for a recognised overseas scheme transfer factor. 

The factor given is 1.17 (£1.2m/£1.03m, rounded up to two decimal places). £1.03m is the standard lifetime allowance in 2018/19. 

Anne decides to take benefits in 2019/20 when the SLA is £1.055m. The funds are worth £1.25m at that time, and the enhanced lifetime allowance is calculated as:

SLA + (SLA x enhancement factor)

= £1.055m + (£1.055m x 1.17) = £2,289,350

Therefore, Anne’s lifetime allowance in 2019/20 is £2,289,350. To work out her available lifetime allowance, you need to deduct the revalued BCE8 amount. This is calculated as:

£1m (the amount tested under BCE8) x £1.055m/£1m = £1.055m

Where £1.055m is the current SLA and £1m was the SLA in 2017/18 at the time of the BCE8. 

Anne’s available lifetime allowance in 2019/20 is therefore:

£2,289,350 - £1,055,000 = £1,234,350

The funds she is crystallising of £1.25m in 2019/20 are therefore tested against her remaining available lifetime allowance of £1,234,350. This would result in a lifetime allowance charge on the £15,650 excess.

Transfer back into the UK of crystallised funds

The difference here is that the funds are tested against the lifetime allowance when they are transferred back into the UK. Using the same example of Anne above, if she had taken benefits when the funds were held in the QROPS this means that the funds would be treated as crystallised if they were subsequently transferred back to the UK. 

Assume she took a tax-free lump sum and put the remaining funds into drawdown when they were held in the QROPS. If the value of her drawdown funds was £900,000 when they were transferred back into the UK in 2018/19, Anne could apply to HMRC for a recognised overseas scheme transfer factor. The factor would be 0.88 (£900,000/£1.03m, rounded up to two decimal places). 

If this enhancement factor was in place when the UK provider tested the transfer against the lifetime allowance (as a BCE1), then the factor could be used in the test as follows:

Enhanced lifetime allowance = SLA + (SLA x enhancement factor)

= £1.03m + (£1.03m x 0.88) = £1,936,400

The full £900,000 would be tested against Anne’s available lifetime allowance. The calculation for this is:

Available lifetime allowance = £1,936,400 – (£1m x £1.03m/£1m) = £906,400.

So, the funds of £900,000 transferred back into the UK are tested against her remaining lifetime allowance of £906,400 at the time of transfer. In this example, no lifetime allowance charge would be due.

When transferring pension arrangements between different countries, the transferee should take financial advice in both countries to avoid possible unforseen tax implications.

Further information on transfers into the UK from overseas can be found at:

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm103500(Opens new window)

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm095400(Opens new window)

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