If you’ve been working abroad, then you might qualify for the benefits of the LTA Enhancement
That’s because the Lifetime Allowance (LTA) is available to anyone who has contributed to their UK pension whilst they’ve been working overseas.
If you think you may qualify then please read on. As we’ll explain how the LTA works, if it applies to you and, if it does, what you need to do next to take advantage of any tax savings that could be available.
The LTA Enhancement and UK Non-residents
Governments aren’t generally known for their generosity to tax payers. However in this case the LTA Enhancement specifically helps compensate individual taxpayers who have suffered as the result of unexpected and unfavourable changes in legislation.
In short, the LTA Enhancement is great news for UK non-residents. As all those tax payers who have been contributing to a UK pension scheme whilst working abroad (and being tax resident overseas) have not had access to the UK’s tax relief on their pension contributions, as they have been paying their income tax in a different country’s tax system.
Which is possibly why it was felt that it has been unfair to apply the British LTA and the corresponding tax charges to this part of an individuals pension saving, if they are paying income tax overseas. So the non-residence based LTA enhancement provision (sections 221-223 of the Finance Act 2004) now compensates these taxpayers by increasing their LTA.
So, the important question – Do you qualify?
If you’ve spent time working abroad and were not resident in the UK for tax purposes, but you were contributing to a UK pension scheme, then you could qualify.
If you have been working for a British company (or subsidiary or related organisation) outside of the UK and, at the time you made your pension contributions, you were deemed to have been a “Relevant Overseas Individual”, then that would apply for the tax year as a whole and you would qualify.
However, you would only qualify if your were not residing in the UK and had no income subject to UK income tax and that you were not employed by a UK tax resident entity in any part of the given tax year.
It can sound complicated, so lets look at an example. If you were to have left the UK on 15 November 2010, you would have only become a “Relevant Overseas Individual” from the start of the next tax year. Which means that any contributions you made prior to 6 April 2011 (including all those from 15 November 2010 to 5 April 2011) would not qualify for LTA. In the same way that, if you returned to the UK in the middle of the tax year, you wouldn’t qualify for the entirety of that tax year.
The other important factor for qualification for LTA, is that your employer must not have been a tax resident entity in the UK. This would disqualify anyone sent overseas by a British employer, if you performed duties for, and were paid by, that British employer.
However, if your British based employer sent you overseas to work for another non-UK company, you would qualify. What’s more, you would qualify even if you formally had that contract with your original British based employer and was a member of their pension scheme.
If you qualify, then you must tell HMRC.
Despite the fact that you may well qualify for LTA, your entitlement will not be picked-up and acted upon by HMRC.
It is your responsibility to inform HMRC and to claim what could be a considerable saving. So if you have spent any substantial time working outside of the UK and you contributed to your UK pension, then you really should get in touch with HMRC.
You can notify HMRC by using form APSS 202; deadlines apply (generally 5 years from the 31 January following the date when you either stopped contributing or returned to the UK). More details are available on HMRC website (link out Google loves them for SEO), or you can contact us and we’ll be happy to provide you with assistance or advice.
You may well be able to significantly increase your LTA and save a great deal of money on the related tax charges.
As with most things, timing is critical – and there is a time limit applicable here! So if you do qualify you should act soon, as failure to do so could result in hundreds of thousands of pounds being unnecessarily deducted from your pension fund.
As it’s such a complicated area, you may wish to get some help and advice with your personal circumstances. So please ensure that whomever you speak to is UK based and a regulated IFA who holds a specialist qualification and whose firm is authorised by the FCA to provide advice on pension transfers.