tax aspects: united kingdom

• Australia
• United Kingdom
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UK International Retirement Tax Planning

The UK  tax information below is of a general nature only. Professional advice should be sought prior to investing in the InterRetire Trust.

• For Foreign Nationals Coming to Work in the UK
• For British Expatriates working abroad and expecting to retire to the UK
• Individual Professional Advice

For Foreign Nationals Coming to Work in the UK

Contributions to a pension plan, whether by the employer or the employee, have long been considered a means of saving both income tax and national insurance contributions in the United Kingdom.

UK Registered Pension Schemes

With effect from 6 April 2006 any person contributing to a UK registered pension plan can obtain tax relief in the United Kingdom for contributions each year up to a maximum of £245,000, provided that the fund does not exceed £1.75 million (2009/10).

Refer to the UK HM Revenue and Customs web site for more detail:
http://www.hmrc.gov.uk/rates/pensions.htm.

UK pension funds have the advantage that at retirement age 25% of the fund can be withdrawn as a lump sum. This lump sum is tax-free if the individual is resident in the United Kingdom at the time. The remainder must be used to produce a retirement income.

Migrant Member Relief (MMR)

In order that an individual newly resident in the United Kingdom can obtain relief in the United Kingdom for pension contributions to a non UK scheme, they must satisfy the provisions for migrant member relief.

Provided that an individual has already obtained tax relief for pension contributions to the scheme in a country in which he has been resident at any time within the last ten years he will satisfy the conditions of migrant member relief.

Any contributions that either he or his employer makes to the pension scheme while he is resident in the United Kingdom will therefore qualify for relief in the United Kingdom.

MMR for International Retirement Plans

It is also possible to achieve migrant member relief in circumstances where an individual has been a member of an international pension plan, such as the InterRetire plan which is structured so that benefits can be taken earlier than normal and in a tax efficient manner, provided they have obtained relief in another country.

For example, InterRetire plans have been approved in Hong Kong. If an individual were to be resident in Hong Kong and a member of the plan he or she could obtain tax relief in Hong Kong. This should then qualify him to continue to be a member of the same InterRetire retirement plan if he/she was moved to the United Kingdom.

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For British Expatriates working abroad and expecting to retire to the UK

The introductory information below is relevant to UK citizens who are working overseas but intend to retire to the UK. It deals with the UK tax issues of pension plans which have been established outside the UK, most of which will be set up by non-UK resident employers.

Advice on the tax treatment of contributions should always be sought in the current country of residence of the employee.

An international pension plan such as a correctly established InterRetire plan offer advantages to internationally mobile employees who do not want to have separate pension entitlements in each country of residence.

As part of a British expatriate executive's compensation planning, contributions to an international pension plan and can be tax efficient for the executive in the country of residence and without a penal tax regime in the UK when the executive retires.

Typical questions raised by British expatriates working abroad include:

If I return to the UK and receive a pension income from an international pension plan, is there any liability to UK income tax?

Yes, A UK resident and domiciled individual will be subject to UK income tax at his marginal (i.e. top) rate on 90% of the annual pension received from the retirement plan.

What is the UK tax position if I receive a lump sum from an international pension plan following my return to the UK?

By HMRC concession, UK income tax will either not be charged, or will be charged on a reduced amount, where you receive lump sum retirement benefits from an international pension plan which relate to previous employment overseas.

The level of relief will depend on the extent of your overseas service; a full exemption will be available where the employee's overseas service comprises:

• at least 75 per cent of total service; or
• the total service exceeds 10 years and the whole of the last 10 years of service have been overseas; or
• the total service exceeds 20 years and not less than 50% of total service, including any 10 of the last 20 years, was overseas.

If you do not meet the conditions for full exemption, UK income tax will be charged only on that percentage of the lump sum equivalent to your UK service in that employment.

This concession can provide a significant tax break to executives who have spent a considerable part of their career working abroad.

Is the growth in value of the international pension plan taxable in my hands once I return to the UK?

Provided that you and/or your employer do not contribute to the fund whilst you are UK tax resident, you will not be subject to UK tax on the growth in value.

If I return to the UK, can I and my employer still contribute to an international retirement plan?

No UK tax on the growth in value of Pension

Provided that the rules of the international pension plan allow UK tax residents to make contributions to the plan, both employer and employee contributions can be made. However, as the pension plan is not a registered pension scheme in the UK, tax benefits will only be given for plans for which Migrant Member Relief (MMR) is available.

What are the UK Inheritance Tax Issues regarding international retirement plans?

If you die before your retirement date the pension plan will pay to your executor a lump sum amount (death in service). To avoid UK inheritance tax, the lump sum should be written in trust for the benefits of your dependants (or any other people you wish to benefit) so that the death in service amount is payable to your beneficiaries and not to your estate. You should leave a letter of wishes with the scheme trustees, detailing your beneficiaries and the amount of the fund that you wish to be paid to each.

Once you have drawn the whole of your fund on retirement, the assets formerly in the pension plan become yours unconditionally and would be subject to UK inheritance tax in the normal way.

The above information is a general summary of the UK international pension planning rules.

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Individual Professional Advice

As these are complex areas of both UK and international tax laws, you should seek individual and independent professional advice in respect of the appropriateness of the InterRetire Trust under United Kingdom taxation laws and is not intended to be advice.

InterRetire can refer you to a specialist UK tax advisor, for this and other purther enquiries, please contact InterRetire: enquiries@interretire.com

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