In the final instalment of the series looking at A-day rules, Jonathan Crowther, freelance consultant, looks at provisions relating to domicile
Under the pre-A-Day rules for corresponding relief discussed in last month's article, relief could only be claimed where the individual was non-UK domiciled and employed by an overseas employer. Furthermore, the scheme had to correspond to a UK scheme and be established either in a country where the employee was working, or was resident immediately before coming to the UK, or in a country where the employer had an operating presence.
Under the post-A-Day rules introduced by Schedules 33 and 34 FA 2004, the individual's domicile is no longer taken into account and the scheme can be established anywhere offshore. It is sufficient that the member, having joined the scheme while not resident in the UK, was eligible for relief on contributions paid to the scheme in the country in which they were resident immediately before coming to the UK. The scheme has to be regulated as a pension scheme in the country where it is established and has to undertake to provide certain specified information to HMRC in respect of the member. These new rules are referred to as 'migrant member relief'.
Under Schedule 33 individuals can receive relief on contributions made by them or on their behalf, and on contributions made in respect of them by their employer, as if the contributions to the overseas pension scheme were made to a UK registered pension scheme. Schedule 33 also provides that employers may claim a deduction for contributions made to an overseas pension scheme in respect of employees who are eligible for migrant member relief.
Under Schedule 34, the lifetime allowance and annual allowance provisions will apply in respect of contributions to overseas pension schemes that have received migrant member relief. Member payment charges can also apply to certain payments from overseas schemes to UK tax resident, and recently tax resident, individuals out of funds relating to contributions that have received migrant member relief.
To qualify for migrant member relief the individual must meet the following conditions:
• not be tax resident in the UK when he became a member of the scheme;
• have been entitled to tax relief on contributions to the scheme in the overseas country in which he was resident immediately before coming to the UK, or have been so entitled in any overseas country where he was then resident in the 10 years before he became UK tax resident;
• have been notified by the scheme manager that information concerning benefit crystallisation events will be given to HMRC;
• have relevant UK earnings chargeable to income tax;
• be tax resident in the UK when the contributions are paid;
• have notified the scheme manager that he intends to claim migrant member relief.
Contributions must be made to the scheme by, on behalf of, or in respect of the individual during a period of UK tax residence which began when he was a member of the scheme.
In order to qualify, an overseas pension scheme must have notified HMRC that it is an overseas scheme and provide supporting documentation if required, including the tax approval letter of the country of residence, and undertake to notify HMRC if it ceases to be an overseas pension scheme and provide to HMRC by 31 January, following the year in which a crystallisation event occurs, full details of the crystallisation event.
For those individuals working in the UK on split employment contracts who can arrange tax free remittances into the UK to live on, migrant member relief offers an opportunity to shelter UK earnings from tax up to £215,000 a year.
This is the last in the series of articles on the new A-Day rules. Next month's will look at new rules impacting the residence and reporting of offshore trustees n
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