How to increase your pension lifetime allowance as an expat

Updated: Nov 15, 2019

The lifetime allowance for the tax year 2019/20 is £1,055,000 and it is likely to increase in line with inflation at the end of the current tax year.

While most people aren’t affected by the lifetime allowance, you should take action if the value of your pension benefits is approaching, or above, the lifetime allowance.

The rate of tax you pay on pension savings above your lifetime allowance depends on how the money is paid to you - the rate is:

· 55% if you get it as a lump sum

· 25% if you get it any other way, for example pension payments or cash withdrawals

There are two forms of transitional protection in place, namely Fixed protection 2016 and Individual protection 2016. Both of which, though differing in parameters, offer an increased lifetime allowance up to a maximum of 1.25million.

However an alternative mechanism of protection which is less well known is the opportunity for those individuals who were still benefiting from their UK scheme whilst non- resident to apply for an Enhancement factor, also known as a Non- resident factor. 

Unfortunately it is never made very clear, either by scheme administrators or HMRC, as to how this works and how you can apply.

Generally where an individual is working abroad they will not receive UK tax relief on contributions to, or the accrual of benefits under, a registered pension scheme. Yet the resulting benefits may count as benefit crystallisation events. For this reason, there is a provision to add the value of those rights to the member’s lifetime allowance (so the value of those benefits does not fall subject to the lifetime allowance charge). This is done by sections 221-223 Finance Act 2004, which broadly provide for an individual’s lifetime allowance to be enhanced for such a period of overseas service after 5 April 2006.

The enhancement is achieved with a non-residence factor that is then used to adjust the lifetime allowance figure.

To qualify for a non-residence lifetime allowance enhancement factor a registered pension scheme member has to be a relevant overseas individual during any part of an active membership period

The non-residence factor is calculated by dividing the amount of contributions to, or accrual under, the individual’s pension arrangement during that part-period by the standard lifetime allowance for the tax year in which that part-period ends.

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.

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:

Once HMRC complete their calculations you will be given your enhancement factor as a percentage. As a pure example, if your enhancement factor is 0.3 you would gain an enhancement of 316,500 (based on the current standard LTA) this would then be added to the current SLA, providing you with a new protected amount of 1.371,500.

Upon issuance of an Enhancement /Non resident factor, you then need to notify your scheme of the enhancement.

The non resident /enhancement factor can be a key financial planning tool for those who have accumulated large pensions while working outside of the UK as an expat. And applying successfully could save you a significant amount of tax.

To understand more about the lifetime allowance and to find out if you are eligible for an enhancement factor contact me here

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