Personal Tax - United Kingdom

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

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  can be tax efficient for the executive in the country of residence,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?

Prior to 2014 there was an Extra Statutory Concession A10 under UK Income Tax rules related to the taxation of lump sums from an international retirement plans .This concession ceased to operate in 2015 by the enactment of Extra Statutory Concessions Order SI2014/211 which inserted Section 395B of the Income Tax (Earnings and Pensions) Act 2003 “ITEPA 2003” in respect of lump sums received on or after 5 February 2014.

Section 395B includes exactly the same conditions as Extra Statutory Concession A10, that is to say the service in respect of which the right to receive the lump sum accrued (referred to reckonable service) is or includes Foreign Service being duties performed outside the UK. The conditions are that:

  • Three quarters or more of the period of reckonable service is made up of foreign service;
  • If the period of reckonable service exceeds 10 years, the whole of the last 10 years of that period is made up of foreign service; or
  • If the period of reckonable service exceeds 20 years, one half or more of that period including any ten of the last twenty years is made up of Foreign Service.

Individual professional advice should be sort regarding your personal circumstances

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?

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.

Individual Professional Advice

As UK cross border pension rules are complex, you should seek specific independent professional advice in respect of the appropriateness of the InterRetire Plan taking account of your own personal circumstances.

InterRetire can refer you to a specialist UK tax advisor ([email protected])

Protect, preserve and enhance your retirement wealth with InterRetire

Find out how an InterRetire Plan can offer you a flexible approach to retirement planning, wealth accumulation and succession planning. Please feel free to leave your email address below and a professional will get in touch to start a conversation with you.