As part of the UK pensions simplification proposals, there are some important changes that British e...
As part of the UK pensions simplification proposals, there are some important changes that British expatriates should be aware of, states Brendan Harper, technical services consultant at Friends Provident International.
Harper explained: "The new pension regime in the UK contains rules which are considerably different from previous rules. These affect the ability for non-UK residents and their employers to make contributions to UK pension schemes."
Under the old regime, according to Harper, the rules differed depending on whether the pension in question was a personal pension plan or a company pension plan.
In relation to personal pension plans, a non-resident could contribute to the plan if they had net relevant earnings in the UK. They could contribute up to the higher of the earnings threshold (£3,600) and the appropriate percentage of relevant earnings from a basis year. The basis year was either the year of the contribution, or the earnings for any of the previous five tax years.
If there were no net relevant earnings in the UK then, before April 2001, no contributions could be made. Since April 2001, contributions could still be made providing that: at some time in the tax year they were resident and ordinarily resident in the UK or at some time in the five tax years preceding the tax year in question they were resident and ordinarily resident in the UK and were resident and ordinarily resident in the UK when they set up the pension.
According to Harper, this also applied to the ability for the employer to make contributions to the personal pension. In relation to company pension schemes, where an employee was seconded abroad, they could continue to be a member of the UK scheme if they were an employee of the UK company. More commonly, however, the employee would be seconded to a foreign employer, usuallya subsidiary company. In these circumstances, the employer could continue to make contributions providing the following applied:
the employee's earnings were chargeable to UK tax;
there was a definite expectation that the employee would come to the UK either to retire or to take up employment with the employer;
the UK employer paid the contributions and was reimbursed by the overseas company;
the prospective pension for overseas service was based on remuneration deemed appropriate for similar employment in the UK;
the period of overseas service did not exceed 10 years.
However, all of the above is now history, explained Harper. He said under the new rules anybody could make contributions to a UK pension scheme, regardless of where or for how long they are resident. This means that UK expats and their employers will be able to continue to contribute to their pensions.
Employers will still be able to receive tax relief on the contributions, but non-residents will only be able to do so if they have UK earnings.
Where an individual does not benefit from tax relief, their contributions will not be tested against their annual allowance or, more importantly, their lifetime allowance on taking benefits.
Harper added: "Pensions simplification is something advisers may wish to discuss with clients. Certainly, the proposals make it viable for an expat to continue contributing to their pensions."
The new pension regime in the UK affects the ability of expats to make contributions to UK pension regimes
Employers will still be able to receive tax relief on contributions, but non-residents will only be able to do so if they have UK earnings
Advisers should discuss pension simplification with their clients
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