Finance (No. 2) Bill (HL Bill 156)

(ii) a relevant non-UK scheme, and

(iii) an employer-financed retirement benefits scheme
established in the United Kingdom, and

(b) the payment of the lump sum is not a relevant step by reason
5of which Chapter 2 of Part 7A applies.

(2) A lump sum paid under a relevant non-UK scheme to a member of
the scheme, or to a person in respect of a member of the scheme, is “a
relevant lump sum” for the purposes of this Chapter if the effect of
paragraphs 1 to 7 of Schedule 34 to FA 2004 is that the member
10payment provisions (see paragraph 1(4) of that Schedule) do not
apply in relation to the payment of the lump sum.

(3) If section 573 applies to a relevant lump sum then, for the purposes
of section 575, the full amount of the pension income arising by
reason of the payment of the lump sum is the amount of the lump
15sum, reduced as follows—

Step 1

Deduct so much of the lump sum as is payable by reason of
commutation of rights to receive pension income on which no
liability to tax arises as a result of any provision of Chapter 17 of this
20Part.

Step 2

Deduct so much of the lump sum left after Step 1 as is paid in respect
of rights, which accrued before 6 April 2017, specifically to receive
benefits by way of lump sum payments.

25Step 3

If the lump sum is paid under an overseas pension scheme, deduct
so much of the lump sum left after Step 2 as would, if the scheme
were a registered pension scheme, not be liable to income tax under
this Part.

30For the purposes of this Step—

• “(a)

  treat amounts not included in taxable pension income
  because of section 636B(3) as being not liable to tax;

  (ii)

  assume that all or part of the member’s lifetime
  allowance is available.”

(4) 35The amount given by subsection (3) is treated for the purposes of
section 575 as arising when the lump sum is paid.

(5) The Commissioners may by regulations make provision (including
provision amending this section) as to the assumptions to be made
for the purposes of Step 3.

(6) 40In this section—

• “employer-financed retirement benefits scheme” has the same
  meaning as in Chapter 2 of Part 6 (see section 393A),

• “member”, in relation to a pension scheme, has the meaning
  given by section 151 of FA 2004,

• 45“overseas pension scheme” has the same meaning as in Part 4 of
  FA 2004 (see section 150(7) of that Act),

• “payment” includes a transfer of assets and any other transfer of
  money’s worth,

Finance (No. 2) BillPage 171

• “pension scheme” has the meaning given by section 150(1) of
  FA 2004, and

• “relevant non-UK scheme” is to be read in accordance with
  paragraph 1(5) of Schedule 34 to FA 2004.””

(2) 5The amendment made by this paragraph has effect in relation to lump sums
paid on or after 6 April 2017.

11 (1) In section 576A of ITEPA 2003 (temporary non-residents), as it applies
where the year of departure is the tax year 2013-14 or a later tax year, after
subsection (4) insert—

“(4ZA) 10Payment of a relevant lump sum is also a “relevant withdrawal”.””

(2) The amendment made by this paragraph applies in relation to relevant
withdrawals on or after 6 April 2017.

12 (1) In section 576A of ITEPA 2003, as it applies where the year of departure is
the tax year 2012-13 or an earlier tax year, after subsection (4A) insert—

“(4AA) 15Payment of a relevant lump sum is also a “relevant withdrawal”.””

(2) The amendment made by this paragraph applies in relation to relevant
withdrawals on or after 6 April 2017.

Section 18

SCHEDULE 4 Pensions: offshore transfers

20Part 1 Charges where payments made in respect of overseas pensions

Amendments of Schedule 34 to FA 2004

1 Schedule 34 to FA 2004 (non-UK pension schemes: application of certain
charges) is amended as follows.

2 (1) 25Paragraph 1 (application of member payment charges to relevant non-UK
schemes) is amended as follows.

(2) After sub-paragraph (6) insert—

“(6A) There are three types of relevant transfer—

(a) an original relevant transfer,

(b) 30a subsequent relevant transfer, and

(c) any other (including, in particular, all relevant transfers
before 9 March 2017).

(6B) “An original relevant transfer” is—

(a) a relevant transfer within sub-paragraph (6)(a) made on or
35after 9 March 2017,

(b) a relevant transfer within sub-paragraph (6)(b), made on
or after 9 March 2017, of the whole or part of the UK tax-
relieved fund of a relieved member of a qualifying
recognised overseas pension scheme, or

(c) a relevant transfer within sub-paragraph (6)(b), made on
or after 6 April 2017, of the whole or part of the UK tax-
relieved fund of a relieved member of a relevant non-UK
scheme that is not a qualifying recognised overseas
5pension scheme.

(6C) The sums or assets transferred as a result of an original relevant
transfer constitute a ring-fenced transfer fund, and the key date for
that fund is the date of the transfer.

(6D) Where in the case of a ring-fenced transfer fund (“the source
10fund”) there is a relevant transfer of the whole or part of the
fund—

(a) the sums or assets transferred as a result of the transfer
constitute a ring-fenced transfer fund,

(b) that fund has the same key date as the source fund, and

(c) 15the transfer is “a subsequent relevant transfer”, and is not
an original relevant transfer.

(6E) Sub-paragraph (6D) applies whether the source fund is a ring-
fenced transfer fund as a result of sub-paragraph (6C) or as a result
of sub-paragraph (6D).

(6F) 20The Commissioners for Her Majesty’s Revenue and Customs may
by regulations provide that sums or assets identified in
accordance with the regulations are not included in a ring-fenced
transfer fund as a result of sub-paragraph (6D)(a).””

3 (1) Paragraph 2 (member payment provisions apply to payments out of non-UK
25schemes if member is UK resident or has been UK resident in any of the
preceding 5 tax years) is amended as follows.

(2) The existing text becomes sub-paragraph (1).

(3) In that sub-paragraph, after “scheme” insert “so far as it is referable to 5-
year-rule funds”.

(4) 30After that sub-paragraph insert—

“(2) The member payment provisions do not apply in relation to a
payment made (or treated by this Part as made) to or in respect of
a relieved member of a relevant non-UK scheme so far as it is
referable to 10-year rule funds unless the member—

(a) 35is resident in the United Kingdom when the payment is
made (or treated as made), or

(b) although not resident in the United Kingdom at that time,
has been resident in the United Kingdom earlier in the tax
year in which the payment is made (or treated as made) or
40in any of the 10 tax years immediately preceding that year.

(3) The member payment provisions do not apply in relation to a
payment made (or treated by this Part as made) to or in respect of
a transfer member of a relevant non-UK scheme, so far as it is
referable to any particular ring-fenced transfer fund of the
45member’s under the scheme which has a key date of 6 April 2017
or later, unless—

(a) the member is resident in the United Kingdom when the
payment is made (or treated as made), or

(b) although the member is not resident in the United
Kingdom at that time—

(i) 5the member has been resident in the United
Kingdom earlier in the tax year containing that
time, or

(ii) the member has been resident in the United
Kingdom in any of the 10 tax years immediately
10preceding the tax year containing that time, or

(iii) that time is no later than the end of 5 years
beginning with the key date for the particular fund.

(4) In this paragraph—

• “5-year rule funds”, in relation to a payment to or in respect
  15of a relieved member of a relevant non-UK scheme, means
  so much of the member’s UK tax-relieved fund under the
  scheme as represents tax-relieved contributions, or tax-
  exempt provision, made under the scheme before 6 April
  2017;

• 20“5-year rule funds”, in relation to a payment to or in respect
  of a transfer member of a relevant non-UK scheme,
  means—

  (a)

  the member’s relevant transfer fund under the
  scheme, and

  (b)

  25any of the member’s ring-fenced transfer funds
  under the scheme that has a key date earlier than 6
  April 2017;

• “10-year rule funds”, in relation to a payment to or in respect
  of a relieved member of a relevant non-UK scheme, means
  30so much of the member’s UK tax-relieved fund under the
  scheme as represents tax-relieved contributions, or tax-
  exempt provision, made under the scheme on or after 6
  April 2017.

(5) See also—

• 35paragraph 1(6C), (6D) and (6F) (meaning of “ring-fenced
  transfer fund”),

• paragraph 3 (meaning of “UK tax-relieved fund”, “tax-
  relieved contributions” and “tax-exempt provision” etc),
  and

• 40paragraph 4 (meaning of “relevant transfer fund” etc).””

4 (1) Paragraph 3 (payments to or in respect of relieved members of schemes) is
amended as follows.

(2) After sub-paragraph (5) insert—

“(5A) The Commissioners for Her Majesty’s Revenue and Customs may
45by regulations provide that, in circumstances specified in the
regulations, something specified in the regulations is to be treated
as done by, to, in respect of or in the case of a relieved member of
a relevant non-UK scheme.””

(3) In sub-paragraph (6) (power to specify whether payments by scheme are
referable to UK tax-relieved fund) after “payments made (or treated as
made) by” insert “, or other things done by or to or under or in respect of or
in the case of,”.

(4) 5After sub-paragraph (7) insert—

“(8) Where regulations under sub-paragraph (6) make provision for a
payment or something else to be treated as referable to a member’s
UK tax-relieved fund under a scheme, regulations under that sub-
paragraph may make provision for the payment or thing, or any
10part or aspect of the payment or thing, also to be treated as
referable to a particular part of that fund.””

5 (1) Paragraph 4 (payments to or in respect of transfer members of schemes) is
amended as follows.

(2) In sub-paragraph (1), after “relevant transfer fund” insert “, or ring-fenced
15transfer funds,”.

(3) In sub-paragraph (2) (meaning of “relevant transfer fund”), before “so much
of” insert “, subject to sub-paragraph (3A),”.

(4) After sub-paragraph (3) insert—

“(3A) The member’s relevant transfer fund under the scheme does not
20includes sums or assets that are in any of the member’s ring-fenced
transfer funds under the scheme.””

(5) After sub-paragraph (4) insert—

“(5) The Commissioners for Her Majesty’s Revenue and Customs may
by regulations provide that, in circumstances specified in the
25regulations, something specified in the regulations is to be treated
as done by, to, in respect of or in the case of a transfer member of
a relevant non-UK scheme.

(6) Regulations made by the Commissioners for Her Majesty’s
Revenue and Customs may make provision for determining
30whether payments or transfers made (or treated as made) by, or
other things done by or to or under or in respect of or in the case
of, a relevant non-UK scheme are to be treated as referable to a
member’s ring-fenced transfer funds under the scheme (and so
whether or not they reduce the funds or any of them).

(7) 35Where regulations under sub-paragraph (6) make provision for a
payment or transfer or something else to be treated as referable to
a member’s ring-fenced transfer funds under a scheme,
regulations under that sub-paragraph may make provision for the
payment or transfer or other thing, or any part or aspect of the
40payment or transfer or thing, also to be treated as referable to a
particular one of those funds.””

6 In paragraph 7(2)(c) (regulations about application of member payment
provisions), after “relevant transfer fund” insert “or ring-fenced transfer
funds”.

7 (1) 45Paragraph 9ZB (application of section 227G) is amended as follows.

(2) In sub-paragraph (2), after “relevant transfer fund” insert “or ring-fenced
transfer funds”.

(3) After sub-paragraph (3) insert—

“(4) The reference in sub-paragraph (2) to the individual’s ring-fenced
5transfer funds under the relevant non-UK scheme is to be read in
accordance with paragraph 1.””

8 The amendments made by paragraph 3 apply in relation to payments made
(or treated as made) on or after 6 April 2017, and the amendments made by
paragraphs 2 and 4 to 7 come into force on 9 March 2017.

10Consequential amendments in ITEPA 2003

9 (1) Section 576A of ITEPA 2003 (as it applies where the year of departure is the
tax year 2013-14 or a later tax year) is amended as follows.

(2) In subsection (6)(b) (pension income: temporary non-residents: non-
application where payment not referable to relevant transfer fund)—

(a) 15for “not referable” substitute “referable neither”, and

(b) after “relevant transfer fund” insert “, nor to the member’s ring-
fenced transfer funds,”.

(3) In subsection (10) (interpretation), at the end insert—

• “““member’s ring-fenced transfer fund” (see paragraph 1(6C)
  20and (6D).””

(4) The amendments made by this paragraph apply in relation to relevant
withdrawals on or after 6 April 2017.

10 (1) Section 576A of ITEPA 2003, as it applies where the year of departure is the
tax year 2012-13 or an earlier tax year, is amended as follows.

(2) 25In subsection (6) (pension income: temporary non-residents: non-
application unless payment referable to relevant transfer fund), after
“member’s relevant transfer fund” insert “, or the member’s ring-fenced
transfer funds,”.

(3) In subsection (8) (interpretation), before the definition of “scheme pension”
30insert—

• “““member’s ring-fenced transfer funds” has the same meaning
  as in that Schedule (see paragraph 1(6C) and (6D));”.”

(4) The amendments made by this paragraph apply in relation to relevant
withdrawals on or after 6 April 2017.

Part 2 Income tax on pension transfers: overseas transfer charge

Tax charge on transfers to qualifying recognised overseas pension schemes

11 In Part 4 of FA 2004 (pension schemes etc), after section 244 insert—

““Non-UK schemes: the overseas transfer charge

244A 5 Overseas transfer charge

(1) A charge to income tax, to be known as the overseas transfer charge,
arises where—

(a) a recognised transfer is made to a QROPS, or

(b) an onward transfer is made during the relevant period for the
10original transfer,

and the transfer is not excluded from the charge by or under any of
sections 244B to 244H.

(2) Sections 244B to 244H are subject to section 244I (circumstances in
which exclusions do not apply).

(3) 15In this group of sections, an “onward transfer” is a transfer of sums
or assets held for the purposes of, or representing accrued rights
under, an arrangement under a QROPS or former QROPS in relation
to a member so as to become held for the purposes of, or to represent
rights under, an arrangement under another QROPS in relation to
20that person as a member of that other QROPS.

(4) In this group of sections “relevant period” means—

(a) in the case of a recognised transfer made on 6 April in any
year, the 5 years beginning with the date of the transfer,

(b) in the case of any other recognised transfer, the period
25consisting of the combination of—

(i) the period beginning with the date of the transfer and
ending with the next 5 April, and

(ii) the 5 years beginning at the end of that initial period,

(c) in the case of an onward transfer, the period—

(i) 30beginning with the date of the transfer, and

(ii) ending at the end of the relevant period for the
original transfer (see paragraphs (a) and (b) or, as the
case may be, paragraphs (d) and (e)),

(d) in the case of a relevant transfer that—

(i) 35is made on 6 April in any year, and

(ii) is the original transfer for an onward transfer,

the 5 years beginning with the date of the relevant transfer,
and

(e) in the case of a relevant transfer that—

(i) 40is made otherwise than on 6 April in any year, and

(ii) is the original transfer for an onward transfer,

the period consisting of the combination of: the period
beginning with the date of the relevant transfer and ending

with the next 5 April; and the 5 years beginning at the end of
that initial period.

(5) In this group of sections “the original transfer”, in relation to an
onward transfer, means (subject to subsection (6))—

(a) 5the recognised transfer in respect of which the following
conditions are met—

(i) it is from a registered pension scheme to a QROPS,

(ii) the sums and assets transferred by the onward
transfer directly or indirectly derive from those
10transferred by it, and

(iii) it is more recent than any other recognised transfer in
respect of which the conditions in sub-paragraphs (i)
and (ii) are met, or

(b) where there is no such recognised transfer, the relevant
15transfer (see paragraph 1(6) of Schedule 34) in respect of
which the following conditions are met—

(i) it is from a relevant non-UK scheme (see paragraph
1(5) of Schedule 34),

(ii) it is a transfer of the whole or part of the UK tax-
20relieved fund (see paragraph 3 of Schedule 34) of a
member of the scheme,

(iii) it is to a QROPS, and

(iv) the sums and assets transferred by the onward
transfer directly or indirectly derive from those
25transferred by it.

(6) Where apart from this subsection there would be different original
transfers for different parts of an onward transfer, each such part of
the onward transfer is to be treated as a separate onward transfer for
the purposes of this group of sections.

(7) 30In this section and sections 244B to 244N—

• “QROPS” means a qualifying recognised overseas pension
  scheme, and “former QROPS” means a scheme that has at any
  time been a QROPS;

• “ring-fenced transfer fund”, in relation to a QROPS or former
  35QROPS, has the meaning given by paragraph 1 of Schedule
  34;

• “this group of sections” means this section and sections 244B to
  244N.

244B Exclusion: member and receiving scheme in same country

(1) 40A recognised transfer to a QROPS is excluded from the overseas
transfer charge if during the relevant period—

(a) the member is resident in the country or territory in which
the QROPS is established, and

(b) there is no onward transfer—

(i) 45for which the recognised transfer is the original
transfer, and

(ii) which is not excluded from the charge.

(2) If the member is resident in that country or territory at the time of the
transfer mentioned in subsection (1), it is to be assumed for the
purposes of subsection (1) that the member will be resident in that
country or territory during the relevant period; but if, at a time before
5the end of the relevant period, the transfer ceases to be excluded by
subsection (1) otherwise than by reason of the member’s death—

(a) that assumption is from that time no longer to be made, and

(b) the charge on the transfer is treated for the purposes of
sections 244L and 254 as charged at that time.

(3) 10An onward transfer to a QROPS (“transfer A”) is excluded from the
overseas transfer charge if during so much of the relevant period as
is after the time of transfer A—

(a) the member is resident in the country or territory in which
the QROPS is established, and

(b) 15there is no subsequent onward transfer that—

(i) is of sums and assets which, in whole or part, directly
or indirectly derive from those transferred by transfer
A, and

(ii) is not excluded from the charge.

(4) 20If the member is resident in that country or territory at the time of
transfer A, it is to be assumed for the purposes of subsection (3) that
the member will be resident in that country or territory during so
much of the relevant period as is after the time of transfer A; but if,
at a time before the end of the relevant period, the transfer ceases to
25be excluded by subsection (3) otherwise than by reason of the
member’s death—

(a) that assumption is from that time no longer to be made, and

(b) the charge on transfer A is treated for the purposes of sections
244L and 254 as charged at that time.

244C 30 Exclusion: member and receiving scheme in EEA states

(1) This section applies to a transfer to a QROPS established in an EEA
state.

(2) If the transfer is a recognised transfer, the transfer is excluded from
the overseas transfer charge if during the relevant period—

(a) 35the member is resident in an EEA state (whether or not the
same EEA state throughout that period), and

(b) there is no onward transfer—

(i) for which the recognised transfer is the original
transfer, and

(ii) 40which is not excluded from the charge.

(3) If the member is resident in an EEA state at the time of the recognised
transfer mentioned in subsection (2), it is to be assumed for the
purposes of this section that the member will be resident in an EEA
state during the relevant period; but if, at a time before the end of the
45relevant period, the transfer ceases be excluded by subsection (2)
otherwise than by reason of the member’s death—

(a) that assumption is from that time no longer to be made, and

(b) the charge on the transfer is treated for the purposes of
sections 244L and 254 as charged at that time.

(4) If the transfer is an onward transfer (“transfer B”), the transfer is
excluded from the overseas transfer charge if during so much of the
relevant period as is after the time of the onward transfer—

(a) the member is resident in an EEA state (whether or not the
5same EEA state at all of those times), and

(b) there is no subsequent onward transfer that—

(i) is of sums and assets which, in whole or part, directly
or indirectly derive from those transferred by transfer
B, and

(ii) 10is not excluded from the charge.

(5) If the member is resident in an EEA state at the time of transfer B, it
is to be assumed for the purposes of subsection (4) that the member
will be resident in an EEA state during so much of the relevant
period as is after the time of transfer B; but if, at a time before the end
15of the relevant period, the transfer ceases to be excluded by
subsection (4) otherwise than by reason of the member’s death—

(a) that assumption is from that time no longer to be made, and

(b) the charge on transfer B is treated for the purposes of sections
244L and 254 as charged at that time.

244D 20 Exclusion: receiving scheme is an occupational pension scheme

A transfer to a QROPS is excluded from the overseas transfer charge
if—

(a) the QROPS is an occupational pension scheme, and

(b) when the transfer is made, the member is an employee of a
25sponsoring employer of the QROPS.

244E Exclusion: receiving scheme set up by international organisation

(1) A transfer to a QROPS is excluded from the overseas transfer charge
if—

(a) the QROPS is established by an international organisation
30and has effect so as to provide benefits for, or in respect of,
past service as an employee of the organisation, and

(b) when the transfer is made, the member is an employee of the
organisation.

(2) In this section “international organisation” means an organisation to
35which section 1 of the International Organisations Act 1968 applies
by virtue of an Order in Council under subsection (1) of that section.

244F Exclusion: receiving scheme is an overseas public service scheme

(1) A transfer to a QROPS is excluded from the overseas transfer charge
if—

(a) 40the QROPS is an overseas public service pension scheme, and

(b) when the transfer is made, the member is an employee of an
employer that participates in the scheme.

(2) A QROPS is an “overseas public service pension scheme” for the
purposes of this section if—

(a) 45either—

(i) it is established by or under the law of the country or
territory in which it is established, or