The tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime, the Chancellor has confirmed in his Autumn Statement document.

According to the document, the tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones.

It also stated that the government will close specialist pension schemes for those employed abroad (‘section 615’ schemes) to new saving. In addition, it will extend from five to 10 years the taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief.

The government will also align the tax treatment of funds transferred between registered pension schemes, and update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.

Commenting on the announcement, Ashurst pensions partner Marcus Fink said:"It is entirely right that the tax treatment of foreign pensions should be aligned with the UK tax regime. Anomalies in this area have existed for far too long."

Old Mutual Wealth personal financial planning expert Rachael Griffin stated that the government’s measures are to prevent ‘foreign pensions’ – also known as Qualifying Recognised Overseas Pension Schemes (QROPS) “being misused by anyone looking for a more favourable tax position”.

“The changes will mean the income from a QROPS will be taxed in the same way as a UK pension for anyone returning to the UK – currently only 90 per cent of income from a QROPS is subject to income tax rather than 100 per cent in a UK pensions scheme,” she explained.

The extension of member payment provisions from five to 10 years is likely to impact the pension commencement lump-sum, limiting it to 25 per cent of the UK tax relieved funds for 10 years instead of five, Griffin added.

Also, the update being carried out on the eligibility criteria for foreign schemes suggests “some schemes may lose the ‘recognised’ status by HMRC”, Griffin warned.

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