IMPORTANT WARNING - QROPS, residency and Armed Forces pension transfers
Realising capital from an Armed Forces pension fund will incur a penalty charge by HMRC of 55 percent of the total value of the fund unless the five year non residency rule is satisfied.
The starting point is to establish whether you are infact a non UK resident and if so, what date was this effective from.
The HMRC guidance indicates that Members of the Armed Forces are classed as Crown Servants. However, being a Crown Servant does not prevent you from being treated as not resident. The same residency rules that apply to everyone else in the UK apply to Crown Servants and also their spouses.
How many days are you present in the UK?
Although the number of days you are present in the UK is vital to take into account when considering residency it is not the only factor to consider – as explained later.
If you are in the UK for 183 days or more in the tax year, you will always be resident in the UK. There are no exceptions to this. You must include the total number of days you spend in the UK not consecutive days. It makes no difference if you come and go several times during the year or if you are here for one stay of 183 days or more.
If you are in the UK for less than 183 days, you might still be resident for the year. You should always look at the pattern of your lifestyle when deciding whether you are resident in the UK.
What connections do you still have with the UK such as family, property, business and social connections?
Just because you leave the UK to live or work abroad does not necessarily prove that you are no longer resident there.
It is important to look carefully at other ties and connections you may still have with the UK. Typical examples include:
Owning property in the UK
Economic interests including bank accounts
Available accommodation
If your family lives in the UK
Whether your children are educated in the UK
And even social ties such as membership to a local golf club.
If you are someone who comes to the UK on a regular basis and have a settled lifestyle pattern connecting you to the UK, you are likely to be resident there regardless of the number of days spent outside the UK.
The next step for a non UK resident
If you believe you are non UK resident you should advise HMRC if you have not already done so by completing form R85.
Why five complete tax years of non residency is important.
It is important to remember that when you transfer out of a UK pension scheme the transfer is reported by that scheme to HMRC both in terms of who it relates to and the scheme to which UK pension rights have been transferred.
So if you transfer to a QROPS and cash in the fund saying you have been a non UK resident for five or more complete tax years and in fact that is not the case you risk a tax charge of 55% on the amount transferred. The reporting of the transfer by the UK scheme therefore exposes you to that particular risk which could catch up with you a considerable time after the transfer.
We cannot stress the importance of proper advice. If as a consequence of the above you have been a non UK resident since before 6 April 2005 then do get in touch as we will able to assist.
