PTM113270 - International: UK tax charges on non UK schemes: the member payment charges and taxable property charges: examples of how payments are referable and a member’s UK funds are reduced on or after 6 April 2017

Glossary

PTM000001

Example 1 – lump sum payment and annuity purchase
Example 2 – designation into drawdown and lump sum payment
Example 3 – payment of an UFPLS
Example 4 – transfer not subject to an overseas transfer charge
Example 5 – transfer subject to an overseas transfer charge
Example 6 – taxable property unauthorised payments charges
Example 7 – reverse depletion on transfer

Example 1 – lump sum payment and annuity purchase

Josef is 57 and has £600,000 under an RNUKS, which includes the following UK funds:

• £250,000 relevant transfer fund
• £150,000 ring-fenced transfer fund.

So, in broad terms, there are £400,000 UK funds and £200,000 non-UK funds.

Josef is paid a £150,000 lump sum, which is the equivalent of a pension commencement lump sum (PCLS), on 31 October 2017.  On 9 November 2017 the remaining £450,000 is used to buy a lifetime annuity for Josef.

Both the lump sum payment and annuity purchase reduce Josef’s UK funds using the normal rule for attributing payments (see PTM113260).

On 31 October 2017 Josef’s relevant transfer fund is reduced due to the payment of the £150,000 PCLS.  After this lump sum payment Josef’s remaining UK funds are:

• £100,000 relevant transfer fund
• £150,000 ring-fenced transfer fund.

The £450,000 annuity purchase on 9 November 2017 is referable to, and reduces, Josef’s funds under the RNUKS as follows:

• £100,000 from the relevant transfer fund
• £150,000 from the ring-fenced transfer fund
• £200,000 from non-UK funds.

Example 2 – designation into drawdown and lump sum payment

Katerina is 60 and has £1 million under a RNUKS, which includes the following UK funds:

• £300,000 UK tax-relieved funds (£100,000 accrued before 6 April 2017, £200,000 built up on or after 6 April 2017)
• £250,000 relevant transfer fund.

Katerina’s scheme allows for 30% of her pension savings to be paid as a lump sum.

On 1 September 2025 Katerina designates £700,000 as available to pay drawdown pension.

On 30 September 2025 the scheme manager pays Katerina a £300,000 lump sum.

The designation is a crystallisation event that reduces Katerina’s funds by £700,000 on 1 September 2025, in the following order:

1. £100,000 UK tax-relieved funds accrued before 6 April 2017.
2. £250,000 relevant transfer fund
3. £200,000 UK tax-relieved funds accrued on or after 6 April 2017
4. £150,000 non-UK funds.

Katerina has now used up all her UK funds, so the £300,000 paid on 30 September 2025 cannot be referable to UK funds and is therefore outside the member payment provisions and charges.

If the £300,000 lump sum had been paid before Katrina designated funds into drawdown then the lump sum would have been within scope of the member payment provisions.  As a result part of the lump sum would have been taxable as an unauthorised payment because the lump sum is more than the maximum PCLS. (In this example the maximum PCLS would be one third of the amount designated into drawdown – see PTM063240.)

Example 3 – payment of an UFPLS

This is the same as the previous example, but Katerina’s scheme allows for the whole fund to be paid as a lump sum once she is 60.

The scheme pays Katerina £1 million on 30 September 2025.  The payment is attributed to and reduces Katerina’s funds in the following order:

1. £100,000 UK tax-relieved funds accrued before 6 April 2017.
2. £250,000 relevant transfer fund
3. £200,000 UK tax-relieved funds accrued on or after 6 April 2017
4. £450,000 non-UK funds.

The payment meets the definition of an uncrystallised funds pension lump sum (UFPLS) and so Katerina has tax to pay on the lump sum.  However the amount of the payment subject to tax is limited to the amount of Katerina’s UK funds – that was £550,000.

Of the £550,000 UFPLS within scope of the member payment provisions and charges, £137,500 is tax free, and £412,500 is taxable as pension income at Katerina’s marginal rate of tax.

Example 4 – transfer not subject to an overseas transfer charge

Jacek has the following UK funds held under RNUKS 1.

• £115,000 UK tax-relieved fund (£35,000 accrued before 6 April 2017, £80,000 accrued on or after 6 April 2017)
• £120,000 relevant transfer fund (which includes a taxable asset transfer fund (TATF) of £120,000)
• £90,000 ring-fenced transfer fund with a key date of 6 June 2022 (with a connected ring-fenced taxable asset transfer fund (RFTATF) of £90,000).

Because RNUKS 1 does not have the benefit options that Jacek wants, he decides to transfer some of his funds to another scheme (RNUKS 2).  Jacek asks to transfer £230,000 to RNUKS 2 which is a QROPS.  This transfer is subject to an overseas transfer charge and £230,000 is transferred to RNUKS 2 on 10 April 2024.

The £230,000 transfer payment does not include taxable property and is attributed to, and reduces, Jacek’s UK funds in the following order:

1. £90,000 referable to the ring-fenced transfer fund; under Rule 4 both the ring-fenced transfer fund and RFTATF are reduced to £0
2. £35,000 referable to the UK tax-relieved fund built up before 6 April 2017
3. £105,000 referable to the relevant transfer fund, under Rule 4 both the relevant transfer fund and TATF are reduced by £105,000

After the transfer Jacek has the following UK funds remaining under RNUKS 1:

• £80,000 UK tax-relieved fund, all of which accrued on or after 6 April 2017
• £15,000 relevant transfer fund (which includes a TATF of £15,000).

The transfer creates the following UK funds under RNUKS 2:

• £90,000 ring-fenced transfer fund with a key date of 6 June 2022 (with a connected RFTATF of £90,000)
• £35,000 ring-fenced transfer fund with a key date of 10 April 2024.
• £105,000 relevant transfer fund (which includes a TATF of £105,000).

As explained at PTM113230:

• The transfer of a ring-fenced transfer fund is a subsequent relevant transfer and so the fund keeps the same key date. As it formed part of the member’s RFTATF under RNUKS 1 it creates an RFTATF in RNUKS 2.
• The transfer of the UK tax-relieved funds is an original relevant transfer so creates a ring-fenced transfer fund with the key date being the date of the transfer to RNUKS 2.  Also, as this amount didn’t form part of the member’s RFTATF under RNUKS 1, it doesn’t form part of the RFTATF under RNUKS 2.
• The transfer of a relevant transfer fund goes into a relevant transfer fund for the member under the new scheme.  As the transferred funds formed a TATF under RNUKS 1 they create a TATF under RNUKS 2.

Example 5 – transfer subject to an overseas transfer charge

The circumstances are the same as the previous example, but this time the £230,000 transfer that Jacek has asked for is subject to an overseas transfer charge.  The amounts subject to the overseas transfer charge are restricted to:

• £90,000 from Jacek's ring-fenced fund, and
• £35,000 from Jacek's UK tax-relieved funds.

The transfer of the ring-fenced transfer fund is an 'onward transfer' (see PTM102200) and the scheme manager of RNUKS 1 is jointly and severally liable to the £22,500 overseas transfer charge arising on it.

The transfer of the UK tax-relieved fund is a 'relieved relevant non-UK scheme transfer' (see PTM102200). Only the member is liable to the tax where the overseas tranasfer charge arises on such a transfer, so the scheme manager will not deduct the £8,750 tax that arises on this part of the transfer.

The scheme manager of RNUKS 1 deducts the £22,500 tax due in respect of the overseas transfer charge on the ring-fenced transfer fund before transferring the balance of the requested transfer (£207,000) to RNUKS 2. In this situation the scheme manager is making two payments in respect of Jacek both of which may reduce his UK funds:

• £207,500 transfer and
• £22,500 payment of a joint tax liability of the scheme manager.

The transfer is the first payment made.  It is attributed to, and reduces, Jacek’s UK funds in the attribution order for transfer payments, as follows:

1. £90,000 referable to the ring-fenced transfer fund; under Rule 4 both the ring-fenced transfer fund and RFTATF are reduced to £0
2. £35,000 referable to the UK tax-relieved fund built up before 6 April 2017
3. £82,500 referable to the relevant transfer fund; under Rule 4 both the relevant transfer fund and TATF are reduced by £82,500.

After the transfer Jacek has the following UK funds remaining under RNUKS 1:

• £80,000 UK tax-relieved fund, all accrued on or after 6 April 2017
• £37,500 relevant transfer fund (which includes a TATF of £37,500).

The transfer creates the following UK funds under RNUKS 2:

• £90,000 ring-fenced transfer fund with a key date of 6 June 2022 (which includes a RFTATF of £90,000)
• £35,000 ring-fenced transfer fund with a key date of 10 April 2024
• £82,500 relevant transfer fund (which includes a TATF of £82,500).

The scheme manager of RNUKS 1 then pays the £22,500 overseas transfer charge to HMRC.  This payment is attributed to and reduces Jacek’s UK funds using the normal order for attributing payments (see PTM113260).  The whole £22,500 is referable to Jacek’s relevant transfer fund. Under Rule 4 both the relevant transfer fund and TATF are reduced by £22,500.

After payment of an overseas transfer charge the transfer Jacek has the following UK funds remaining under RNUKS 1:

• £80,000 UK tax-relieved fund, all accrued on or after 6 April 2017
• £15,000 relevant transfer fund (which includes a TATF of £15,000).

Example 6 – taxable property unauthorised payments charges

Jason is a member of an RNUKS that is the equivalent of an investment-regulated pension scheme. His funds within that scheme are split as follows:

• UK tax-relieved fund - £30,000 accrued before 6 April 2017, £80,000 accrued on or after 6 April 2017
• relevant transfer fund - £120,000, of which £120,000 is a TATF
• £90,000 ring-fenced transfer fund, key date 1 July 2017, also part of RFTATF
• £40,000 ring-fenced transfer fund, key date 31 December 2018, also part of RFTATF
• non-UK funds £230,000

Jason’s scheme buys taxable property (a holiday home) for £200,000 which is held under Jason's arrangement.  This is a deemed unauthorised payment under section 174A Finance Act 2004.  The payment is referable to Jason’s relevant transfer fund, TATF, ring-fenced transfer fund(s) and RFTATF in accordance with Rule 1 (see PTM113260).  The taxable amount of the deemed unauthorised payment is limited to the total of Jason’s TATF and RFTATF.  The total of Jason’s TATF and RFTATF is £240,000 which is more than the deemed unauthorised payment.  So Jason is liable to an unauthorised payments charge and unauthorised payments surcharge on the £200,000 deemed unauthorised payment

The holiday home is an appropriated asset and under Rule 1 the value of the asset that generated the unauthorised payment is added back to Jason’s UK funds.  The amount added back is limited to the amount of the deemed unauthorised payment (£200,000) and is attributed to Jason’s funds as follows:

1. £120,000 to the TATF within the relevant transfer fund - that part of the value of the appropriated asset up to £120,000 (the maximum amount of that TATF)
2. £80,000 to the RFTATF and the ring-fenced transfer fund with a key date of 1 July 2017; being the part of the value of the appropriated asset in excess of £120,000 (the value of the TATF) that is no more than the maximum amount of that ring-fenced transfer fund.

The addition of the appropriated asset to Jason’s UK funds matches the deduction made by the unauthorised payment and so there is no change in the overall value of Jason’s UK funds.

The holiday home is sold for a gain of £50,000.  The gain on the sale of the holiday home is treated as an unauthorised payment in respect of Jason.  This transaction is referable to Jason’s relevant transfer fund, TATF, ring-fenced transfer funds and RFTATF in accordance with Rule 3 (see PTM113260).  Under Rule 3 the proceeds of the sale (up to the amount of the deemed unauthorised payment on the sale) are added back to Jason’s funds.  So after the disposal, Jason’s UK funds remain as:

• UK tax-relieved fund - £30,000 accrued before 6 April 2017, £80,000 accrued on or after 6 April 2017
• relevant transfer fund - £120,000, of which £120,000 is a TATF
• £90,000 ring-fenced transfer fund, key date 1 July 2017, also part of RFTATF
• £40,000 ring-fenced transfer fund, key date 31 December 2018, also part of RFTATF.

Example 7 – reverse depletion on transfer

Following on from the previous example, after the sale of the holiday home Jason’s UK funds stand at:

• UK tax-relieved fund - £30,000 pre 6 April 2017 accrual, £80,000 accrued on or after 6 April 2017
• relevant transfer fund - £120,000 of which TATF of £120,000
• £90,000 ring-fenced transfer fund, key date 1 July 2017, also part of RFTATF
• £40,000 ring-fenced transfer fund, key date 31 December 2018, also part of RFTATF.

Jason designates £255,000 as available to pay drawdown pension and a week later is paid a £85,000 lump sum.  The lump sum is the equivalent of a pension commencement lump sum.  These payments are referable to Jason’s funds and reduce them using the normal order of attribution.  Where the payments are attributable to Jason’s relevant transfer fund and ring-fenced transfer funds they are attributable in accordance with Rule 4.  As the designation occurred before the lump sum payment then it is the designation that is the first event that is attributed to and depletes Jason’s funds. 

The £255,000 designation into drawdown reduces Jason’s UK funds as follows:

1. UK tax-relieved fund accrued before 6 April 2017 - £30,000
2. relevant transfer fund - £120,000
3. ring-fenced transfer fund key with date 1 July 2017 - £90,000
4. ring-fenced transfer fund with key date 31 December 2018 - £15,000

After the designation Jason has the following remaining UK funds:

• £80,000 UK tax-relieved fund accrued on or after 6 April 2017
• £15,000 ring-fenced transfer fund, key date 31 December 2018, also part of RFTATF

The £85,000 lump sum payment reduces Jason’s funds further, being attributed first against his UK tax-relieved fund. 

After that payment Jason’s only remaining UK fund is £10,000 in the ring-fenced transfer fund with the key date of 31 December 2018.

Jason receives drawdown pension payments of £70,000.  These payments are authorised pension payments and so whilst in testing their tax treatment they are referable to Jason’s UK funds, they do not deplete his funds.

At this point Jason has received total payments of £155,000 from the scheme (£85,000 lump sum and £70,000 drawdown pension payments).

In September 2021 Jason’s remaining funds under the scheme are now worth £500,000 and Jason transfers his funds to another qualifying recognised overseas pension scheme (QROPS).  This transfer takes place on 15 September 2020 and should be subject to the overseas transfer charge.

The transfer triggers a reverse depletion which takes place immediately before the transfer.  The amount added back is £185,000 (the £255,000 designated less the £70,000 pension paid).  This amount is added back in the order of attribution that applies for transfers, that is:

• £20,000 is added to the ring-fenced transfer fund with key date 31 December 2018 to build it back to its original value of £30,000
• £90,000 is added back to the ring-fenced transfer fund with key date 1 July 2017 to build it back to its original value of £90,000
• £75,000 (being the balance of the £185,000 reverse depletion) is added back to Jason’s UK tax-relieved funds accrued on or after 6 April 2017.

The transfer is subject to the overseas transfer charge, with the taxable amount being £120,000 – the total of Jason’s ring-fenced transfer funds.  The scheme manager of the transferring scheme retains £30,000 to pay the overseas transfer charge to HMRC and transfers the balance of £470,000 to the new QROPS.