TAXATION OF SOCPF BENEFITS
In January 2017 we communicated on the SOCPF website that there would potentially be changes to the taxation treatment of your SOCPF benefits from 6th April 2017 onwards if you are a UK tax resident.
Further detail was provided on 8th March 2017, when the UK Government stated as part of the Spring Budget announcements that following consultation, the legislation has been revised to “…. clarify that all lump sums paid out of funds built up before 6 April 2017 will be subject to existing tax treatment.” This means that lump sums taken from the SOCPF in respect of benefits accrued before 6th April 2017 are expected to continue to be treated under the existing tax regime, i.e. with a tax-free lump sum potentially available, although confirmation of the UK Government’s stated position remains subject to the passing of the Finance Act 2017, expected in late summer 2017. In UK registered schemes such as the SCPF, a lump sum of 25% of the value of the member’s benefits, irrespective of when it was accrued, can be paid tax-free (subject to the Lifetime Allowance or protected amounts).
The legislation published in the Finance Act 2017 on 20th March 2017 does more closely align the taxation of pension income from foreign pension schemes (such as the SOCPF) with that for UK based pension schemes, such as the SCPF. The one exception is that where an individual chooses to exchange some pension for a cash lump sum, the lump sum in respect of benefits accrued after 6th April 2017 will be fully subject to income tax for UK tax residents at their marginal rate.
These changes will have effect from 6th April 2017. Please note that these changes are as a result of changes to UK tax legislation. Neither the Company nor the Trustee are changing the benefits to the SOCPF as a result of these changes to UK tax legislation. The expected effect on the UK taxation of SOCPF benefits for UK tax residents, on the basis of the stated position, is anticipated to be as follows:
- Pension income: Currently only 90% of pension income paid from the SOCPF is subject to income tax. With effect from 6th April 2017, 100% of pension income, irrespective of when it was accrued, will be subject to tax. This aligns with the tax treatment of pension income paid from the SCPF.
- Lump sum: On retirement, members can choose to exchange 25% of the value of their pension income for a cash lump sum. Currently this lump sum may be paid tax-free (if you were not a UK tax resident during the period of accrual) which aligns with the SCPF. With effect from 6th April 2017 lump sums in respect of benefits accrued after 6th April 2017 will be subject to income tax at an individual’s marginal rate.
Please note that both pension income and cash lump sums are paid from the SOCPF gross, i.e. with no deduction for tax. It will be your responsibility to ensure that the correct amount of tax is paid to the relevant tax authority.
Beware of unsolicited emails and of pension scams. We are aware that some companies have contacted SOCPF members suggesting members can transfer their SOCPF and SCPF benefits to more tax efficient vehicles based offshore. Some have also said that the Company or Trustee are making changes to the SOCPF. Neither the Company nor the Trustee are changing the benefits to either the SOCPF or SCPF as a result of these changes to UK tax legislation. Before you make any decision on where your pension is invested we recommend you follow the UK Pension Regulator’s five steps to protect your pension. These steps can be found here.