PTM113250 - International: UK tax charges on non UK schemes: the member payment charges and taxable property charges: payments made on or after 6 April 2017 that reduce a member’s UK funds
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Regulations 4ZA to 4ZC The Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006 - SI 2006/207
Throughout this page of guidance the phrase ‘UK funds’ means a
- UK tax-relieved fund,
- relevant transfer fund
- ring-fenced transfer fund, or
- a combination of more than one of those funds.
For guidance on the definition of these types of fund go to PTM113230.
PTM113260 provides guidance on which of the member’s UK funds a payment will be referable to, and the order in which a member’s UK funds will be reduced.
PTM113270 gives examples of how payments will reduce a member’s UK funds.
Which payments reduce a member’s UK funds
The amount of the payment that reduces a member’s UK funds
Which payments reduce a member’s UK funds
Regulation 4ZA(3)(a) The Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006 - SI 2006/207
The following payments made on or after 6 April 2017 may reduce a member’s UK funds:
- Unauthorised payments (see PTM132000)
- Recognised transfers (see PTM100010)
- The purchase of a lifetime annuity (see PTM062400) if the member has already reached normal minimum pension age or the ill-health condition (see PTM062100) is satisfied.
- The purchase of a lifetime annuity where the member has not yet reached normal minimum pension age and does not satisfy the ill-heath condition, but the terms of the annuity contract do not allow payment before normal minimum pension age unless the ill-health condition is satisfied, and the contract is not capable of being amended to allow for earlier payment.
- The purchase of a dependants’ annuity or nominees’ annuity (see PTM072200)
- Any lump sum that is an authorised lump sum under section 166 Finance Act 2004. Common examples are the pension commencement lump sum and uncrystallised funds pension lump sum – see PTM061200 for a full list.
- A small lump sum payment authorised under regulations 11, 11A or 12 of The Registered Pension Schemes (Authorised Payments) Regulations 2009 – SI 2009/1171 (see PTM063700)
- A defined benefits lump sum death benefit (see PTM073100) and an uncrystallised funds lump sum death benefit (see PTM073200)
- The part of a charity lump sum death benefit (see PTM073900) that is paid from ‘relevant uncrystallised funds’ (as defined under paragraph 15(2) Schedule 29 Finance Act 2004). That is sums and assets that have not yet been designated as available for the payment of drawdown pension, or applied to purchase a scheme pension, lifetime annuity, nominees’ annuity, dependants’ scheme pension or dependants’ annuity.
- A payment pursuant to a pension sharing order or provision, and
- A tax liability of the scheme manager, for example payment of the overseas transfer charge.
In determining whether or not a payment is of a particular type you treat the RNUKS as if it were a registered pension scheme.
Pension payments relating to pre 6 April 2017 benefit crystallisations
Regulation 4ZF The Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006 - SI 2006/207
Payments of a scheme pension or drawdown pension will not reduce a member’s UK funds as a reduction is given when the pension crystallises – see PTM113255. The exception to this rule is where the payment is made in respect of a pension that crystallised before 6 April 2017.
Where a member designated funds as available for the payment of drawdown pension before 6 April 2017, a payment of drawdown pension made on or after 6 April 2017 from those designated funds can be deducted from the member’s UK funds when the pension is paid.
If a member became entitled to the provision of a scheme pension before 6 April 2017, any payment of that scheme pension made on or after 6 April 2017 can be deducted from the member’s UK funds when the pension is paid.
The amount of the payment that reduces a member’s UK funds
Regulation 4ZB The Pension Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006 - SI 2006/207
Regulation 4ZB makes provision for the amount of the reduction to the member’s funds. In most cases the member’s UK funds will be reduced by the amount of the payment listed above when the payment is made. However, the rules are designed to provide for a deduction in respect of uncrystallised rights only, so there are special rules for:
- trivial commutation lump sums,
- winding-up lump sums,
- small payment lump sums under regulations 11, 11A and 12 SI 2009/1171 (see PTM063700),
- pension debits, and
- the purchase of a dependants’ or a nominees’ annuity.
The amount of the deduction for these types of payments is not necessarily the amount of the payment.
Trivial commutation, winding- up and small payment lump sums
Regulation 4ZB(3) The Pension Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006 - SI 2006/207
The amount of the:
- trivial commutation lump sum,
- winding-up lump sum or
- small payment lump sum under regulations 11, 11A or 12 SI 2009/1171
that reduces the member’s UK funds is the amount of the lump sum that was provided from the member’s uncrystallised rights under the scheme.
For example, if a member trivially commuted a scheme pension, the trivial commutation lump sum payment would not reduce the member’s UK funds because the amount of the payment would be £0. This is because the member commuted crystallised rights.
Pension debits
Regulation 4ZB(4) and 4ZF The Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006 - SI 2006/207
The amount of the pension debit that reduces a member’s UK funds depends on the type of funds from which the pension debit actually derives.
The part of a pension debit that that comes from a member’s uncrystallised rights can reduce that member’s UK funds.
Normally, the amount of any pension debit that comes from crystallised rights cannot be deducted from the member’s UK funds. This is because the member’s funds will have been reduced when the benefits crystallised – see PTM113255. However, where benefits crystallised before 6 April 2017, the member’s UK funds will not have been reduced by the benefit crystallisation. Because of this, a deduction may be given in respect of so much of a pension debit that comes from:
- a drawdown pension fund, or flexi-access drawdown fund that was created from a pre 6 April 2017 designation, or
- sums and assets applied before 6 April 2017 for the provision of a scheme pension for the member.
Example
Liz has £1.6 million under three arrangements under an RNUKS, consisting of:
- £400,000 drawdown pension fund, designated into drawdown in October 2014
- £1 million flexi-access drawdown fund, designated into drawdown in September 2017
- £200,000 uncrystallised funds.
As a result of a pension sharing order, Liz has a pension debit of £750,000. The pension debit is applied to the £200,000 uncrystallised rights, the £400,000 drawdown pension fund and the balance (£150,000) from Liz’s flexi-access drawdown fund.
The amount of the pension debit that can reduce Liz’s UK funds is £600,000, being:
£200,000 from uncrystallised rights + £400,000 from pre 6 April 2017 crystallised rights = £600,000
The amount of the pension debit that derives from funds that were crystallised after 6 April 2017 cannot reduce Liz’s UK funds under the RNUKS.
Purchase of a dependants’ or nominees’ annuity
Regulation 4ZB(2) The Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006 - SI 2006/207
Where the payment is the purchase of a dependants’ or nominees’ annuity, the amount of the payment that reduces the member’s funds is so much of the sums and market value of the assets used to purchase the annuity that are ‘unused uncrystallised funds’. Paragraph 27E(4) and (5) of Schedule 28 gives the meaning of ‘unused uncrystallised funds’ – see PTM088660 and PTM072430.