ELIGIBILITY TO JOIN A UK PENSION SCHEME

Since A-day there is no legislative restriction on who can be a member of a UK registered pension scheme. So in theory, anyone regardless of residency can join a UK scheme.

In order for a UK provider to admit residents of other European Economic Area (EEA) states, it must have permission to ‘passport’ its services in that country. Applications for UK providers must be made to the FCA. The key test for eligibility is based on habitual residence when the contract is taken out. For individuals, habitual residence is normally determined by the person’s residential address. When dealing with a business such as an employer, it’s the country in which the business is established.

Trust-based schemes

Here the transaction is between the provider and the scheme trustees. So providing the trustees are all UK-based, there should be no issue with establishing an occupational scheme. Subject to the scheme rules, trust-based UK schemes are able to admit overseas employees.

Contract-based schemes

Under such a scheme, the provider transacts directly with the individual member. This point can cause confusion, particularly where a group personal pension (GPP) is concerned. Often this will be viewed as the employer’s scheme but it’s simply a collection of personal pensions grouped together for ease of administration. This means the provider must have specific permissions to conduct business in the country where the individual member resides. The fact the potential member may work for a UK employer is not relevant.

AVAILABILITY OF TAX RELIEF

Member contributions

Most providers will only accept tax relievable member contributions, although legislatively non relievable contributions can be paid to a UK scheme. The availability of tax relief depends on whether the individual is classed as a ‘relevant UK individual’. An individual is a relevant UK individual for a tax year if they fall into one of the following categories:

1. they have relevant UK earnings chargeable to UK income tax for that year

2. they are tax resident in the UK at some time during that year

3. they were tax resident in the UK at some time during the five tax years immediately before that year and when they became a member of the pension scheme

4. they or their spouse / civil partner has, for that year, general earnings from overseas Crown employment subject to UK tax.

Tax relief is restricted to 100% of relevant UK earnings or £3,600 if higher. The third condition allows a member moving overseas who no longer has relevant UK earnings to continue contributions for a further five tax years. Providing contributions are paid to a scheme set up before they become non-resident, tax relief will be available on:

• 100% of their relevant UK earnings (or £3,600 if higher) in the tax year they become non-resident

• £3,600 for a further five tax years.

Where a member no longer has relevant UK earnings, tax relief is only available if the scheme operates relief at source. So someone paying contributions under the net pay arrangements to an occupational scheme won’t be able to take advantage of this rule unless they join a scheme operating relief at source before they become non-resident.

Clients should check there are no tax implications for the member in their new country of residence if contributions continue to be made to a UK pension scheme.

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