PTM175240 - Lump sum allowance and lump sum and death benefit allowance: Enhancement factors: Overseas transfer factor: Relevant relievable amount for a defined benefits arrangement

As of 6 April 2024 there is no longer lifetime allowance. If you are looking for information about protections, enhancement factors and the lifetime allowance charge please see these pages on The National Archives. If you are looking for information about the principles of lifetime allowance and benefit crystallisation events please see these pages of The National Archives.

If you are looking for information about enhancement factors pre-April 2024 please see The National Archive.  The below guidance applies for individual’s seeking an enhancement factor from 6 April 2024 to 5 April 2025. 

How to calculate the relevant relievable amount for a defined benefits arrangement 

Paragraph 20G(3) and (4) Schedule 36 Finance and Section 277 Finance Act 2004

Where the individual’s arrangement under their recognised overseas pension scheme is a defined benefits arrangement, the defined benefits relevant relievable amount is as follows:

Step 1

Multiply the individual’s pension entitlement under the defined benefits arrangement as at the latest of the following dates by the relevant valuation factor of 20 (or a factor greater than 20 as agreed by HMRC):

  • the date when the individual became someone who is not a relevant overseas individual,
  • the date when benefits first began to accrue to or in respect of the individual under the recognised overseas pension scheme defined benefits arrangement, and
  • 6 April 2006.

Where the defined benefits arrangement rules provide for a separate lump sum that is not a commutation of pension it is necessary to take that into account as well. That is done by adding together the result of the above calculation and the separate lump sum entitlement that the individual has under the defined benefits arrangement as at the latest date above. This only applies if the lump sum entitlement is not linked to the individual’s pension entitlement so that their prospective pension entitlement is not reduced as a result of taking the lump sum.

Step 2

Multiply the individual’s pension entitlement under the defined benefits arrangement as at the earliest of the following dates by the relevant valuation factor of 20 (or a factor greater than 20 as agreed by HMRC):

  • immediately before the transfer was made,
  • the date that the individual ceased to be someone who is not a relevant overseas individual,
  • the date when benefits ceased to accrue to or in respect of the individual under the recognised overseas pension scheme defined benefits arrangement, and
  • 5 April 2024.

Where the defined benefits arrangement rules provide for a separate lump sum that is not a commutation of pension it is necessary to take that into account as well. That is done by adding together the result of the above calculation and the separate lump sum entitlement that the individual has under the defined benefits arrangement as at the earliest date above. This only applies if the lump sum entitlement is not linked to the individual’s pension entitlement so that their prospective pension entitlement is not reduced as a result of taking the lump sum.

Step 3

Deduct the result of step 1 from the result of step 2.

Step 4

If the individual has not been a relevant overseas individual during another part of the overseas arrangement active membership period relating to the same defined benefits arrangement, then thean amount calculated in the same way in respect of each other part-period should be added to the amount at step 3.

The individual’s pension entitlement under the defined benefits arrangement is the annual rate of pension which would be payable to or in respect of the individual if they became entitled to payment of it at the applicable date (as determined under steps 1 or 2 above). The individual’s lump sum entitlement under the defined benefits arrangement is the amount of lump sum which would be payable to or in respect of the individual if they became entitled to payment of it at the applicable date. Both the pension entitlement and the lump sum entitlement are established using the valuation assumptions set out in section 277 Finance Act 2004. They are as follows:

  • the individual concerned has reached any designated age as must have been reached to avoid any reduction in their benefits on account of their age, and
  • their benefits should be valued on the basis that they are not physically or mentally impaired.

Example of calculating the relevant relievable amount for a defined benefits arrangement 

Eric transferred £1.21 million from his recognised overseas pension scheme defined benefits arrangement to a registered pension scheme on 6 June 2009. 

Eric was working in France when he joined his recognised overseas pension scheme defined benefits arrangement on 6 March 2000. He came to work in the UK on 6 May 2006 and so became someone who is not a relevant overseas individual with effect from 6 April 2006. His pension entitlement as 6 April 2006 was £30,000 p.a. He was also entitled to a separate lump sum of £60,000. 

(£30,000 x 20) + £60,000 = £660,000 

Eric returned to work in France on 6 May 2008 and so ceased to be someone who is not a relevant overseas individual with effect from 6 April 2009 whilst still accruing benefits under the scheme. His pension entitlement as6 April 2009 was £56,500 p.a. He was also entitled to a separate lump sum of £80,000. 

(£56,500 x 20) + £80,000 = £1,210,000  

The defined benefits relevant relievable amount is therefore £550,000 (£1,210,000 - £660,000).