Extra-statutory concession A10
The measure
The government will legislate seven extra-statutory concessions (ESCs),
including ESC A10, which provides relief from UK tax on certain lump sums paid
from foreign pension plans where the member has spent at least part of his
employment with that employer in foreign service. Foreign service is broadly
defined as periods during which the employee is either not resident or not
ordinarily resident.
Payments will be totally exempt from income tax where an employee has
'substantial' foreign service (for example at least 75% of total service). Where
'substantial' foreign service does not apply, income tax relief is allowed in
the proportion of foreign service to total service.
The proposal will see the relief, which is currently available on a
concessionary basis, formalised into legislation.
Who will be affected?
Employees and their dependents who receive lump sum distributions from an Overseas Retirement Benefits Scheme or Overseas Provident Fund where the employee has been not resident or not ordinarily resident for at least part of his total period of pensionable service with that employer.
When?
It is proposed that there will be a period of consultation, which will end on 3 March 2010. If the legislation is adopted, it is likely to be announced in the 2010 Budget and take effect from 6 April 2010.
Following HMRC's review of its extra-statutory concessions last year, many feared that ESC A10 would be removed altogether. This would have had a significant impact on UK-resident members of foreign pension plans. This announcement clarifies that relief is given only for the period over which pension actually accrues. No relief is offered where the payment is made to a company, trust, pension scheme, or to an individual who is not a dependent spouse or child. On balance, though, this measure is good news, as it ensures this valuable relief from UK tax for lump sums should remain available for the foreseeable future.
