We have recently dealt with a few clients that have transferred their overseas pensions back to an approved UK pension scheme and then received a huge tax bill from HMRC in the tens and hundreds of thousands of pounds.
This is despite the fact that the clients had not previously drawn down any pension benefits from the overseas pension before or during the pension transfer coming in to the UK pension scheme.
Do not panic. This is a ‘glitch’ in HMRC’s self assessment system.
When completing your self assessment, you are required to complete a section if you have moved your pension scheme from overseas into the UK. The problem being that HMRC’s system was interpreting that you had actually taken i.e. drawn out the pension fund as an income rather than transferring it to a registered UK pension scheme and then leaving it untouched.
If you complete an approved transfer from an overseas pension to a UK pension scheme and not draw any funds out there should likely be no tax bill to pay.
If you draw your pension overseas and then transfer those funds to your UK bank account (not pension) then there will be tax to pay depending upon the tax treaty of the overseas territory with the UK.
If you complete an approved transfer from an overseas pension to a UK pension scheme and then do draw funds from your pension scheme there may be tax to pay out depending upon whether you are drawing out the tax free cash part (if any) or the taxable pension part.
If you do get a tax bill like this, contact HMRC straight away.