RDRM12680 - Residence: The SRT: Temporary non-residence: Pension income

A range of pension-related income, lump sums and gains fall within the temporary non-residence rules. These are listed below:

• withdrawals from a flexible drawdown pension fund – this replaces and updates the existing temporary non-residence charge. EIM75450 contains details of the rules.
• certain lump sums paid under an employer-financed retirement benefit scheme (ERFRB). EIM15010 contains detail if the rules.
• certain steps comprising payment of a lump sum relevant benefit (or, for remittance basis users, the remittance of such a lump sum relevant benefit), comprising a ‘relevant step’ for the purposes of the disguised remuneration rules.
• certain lump sums paid by UK pension schemes in respect of which a charge on receipt is removed by a double taxation agreement. See EIM74060 for more information.
• certain taxable property deemed income and gains of a pension scheme charged to tax on a scheme member. This replaces and updates the existing temporary non-residence charge. Where an individual receives, or becomes entitled to, any of the above during a period of temporary non-residence they will be taxed as if they received, or became entitled to, them in the period of their return.

Example

Toby leaves the UK on 5 August 2013 for a 6 year contract of employment abroad. He is 56, has reached normal minimum pension age, and has lived all his life in the UK.

Toby receives £100,000 as a tax-free pension commencement lump sum, and £300,000 in flexible drawdown from his UK registered pension scheme on 20 April 2014. As he is not resident in the UK for tax year 2014-2015, in accordance with the terms of the double taxation agreement between the UK and the country in which Toby is resident at the time, no income tax is deducted or due in respect of the £300,000 paid as a flexible drawdown.

Due to a change in his personal circumstances, Toby has to return to the UK earlier than he has anticipated. He becomes UK resident once more for 2016-2017; (UK part of the split year commences on 2 September 2016). He therefore finds he was temporary non-resident under the statutory residence test.

Under the relevant provisions the £300,000 taken as a flexible drawdown is a ‘relevant withdrawal. As it was paid during Toby’s period of temporary non-residence and was not charged to tax in the UK. The £300,000 is taxable as pension income as though it accrued in the period of Toby’s return to the UK, rather than at the time it was received.