What is the foreign residence condition under section 647 of ITEPA 2003?

The foreign residence condition under section 647 of the Income Tax (Earnings and Pensions) Act 2003 is met when a pension recipient is not resident in the United Kingdom. The person must make a formal claim to HMRC confirming non-residence, and HMRC must be satisfied that the person is genuinely not UK resident before the condition is treated as met.

What does 'pension' mean for the purposes of the foreign residence condition in ITEPA 2003?

For the purposes of the foreign residence condition, 'pension' is broadly defined. It includes regular pension payments, gratuities, sums payable on or in respect of death, returns of contributions made to a pension scheme, and any interest or other additions included in a return of contributions. This allows the exemption to cover lump sums and related amounts.

How does a non-UK resident claim the pension tax exemption under section 647?

A non-UK resident must make a formal claim to HM Revenue and Customs stating that they are not resident in the United Kingdom. Simply being non-resident is not sufficient. HMRC must also be satisfied that the person is genuinely non-resident. Only when both the claim and HMRC's acceptance are completed is the foreign residence condition met.

Are lump sum pension payments exempt from UK tax under the foreign residence condition?

Yes, lump sum payments can be exempt. Section 647 defines 'pension' broadly to include returns of contributions, interest accrued on contributions, gratuities, and sums payable on death. Provided the pension recipient meets the foreign residence condition by claiming non-residence and HMRC accepting that claim, these lump sums are exempt from United Kingdom income tax.

Income Tax (Earnings and Pensions) Act 2003 section 647

Introduction and meaning of "foreign residence condition" etc.

Section 647 introduces the foreign residence condition, which must be met for certain pension exemptions from UK income tax to apply, and defines what counts as a "pension" for these purposes.

Certain pensions are exempt from UK income tax if the recipient meets the foreign residence condition — that is, the person receiving the pension is not resident in the United Kingdom.
To meet the foreign residence condition, the pension recipient must make a formal claim to HMRC confirming non-residence, and HMRC must be satisfied that the person is indeed not UK resident.
The term "pension" is broadly defined and includes gratuities, sums payable on or in respect of death, returns of contributions, and any interest or other additions included in a return of contributions.
These rules apply across the Chapter, so any later exemptions in this part of the legislation that refer to the foreign residence condition depend on the requirements set out in this section being satisfied.

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