HM Treasury recently confirmed its plans, originally announced on 6 April 2011, to remove the right for UK residents who receive a pension and/or a lump sum from foreign pension schemes to take advantage of a double taxation agreement and receive such payments tax free.

Previously, where a UK resident transferred his pensions savings abroad, double taxation agreements meant that only the tax regime of the host country would apply. However, provisions in the Taxation (International and Other Provisions) Act 2010 (currently in draft form) will ensure that UK residents are still liable to a UK tax charge, with effect from 6 April 2011.

The legislation applies to a pension and/or a lump sum that:

  • Arises outside of the UK;
  • Is paid to a UK resident;
  • Is not subject to UK taxation due to a double taxation agreement;
  • Relates to a transfer from a pension scheme to the overseas scheme from which the payment is made;
  • Is part of a ‘tax avoidance scheme’, ie. where one of its main purposes of the transfer is to secure an income tax advantage under a double taxation agreement.

To view the draft legislation and explanatory notes online, please click on the following link.