A look at Section 615 schemes, which provide retirement benefits for employees of UK companies working abroad.
Section 615(6) Trust schemes are UK-based retirement benefits schemes established under trust law for the purpose of providing bona fide retirement benefits for employees of UK companies working overseas. They are not approved pension schemes, so they do not attract exactly the same tax status as approved schemes – but this does not make them any less attractive. They do however have to be established for the sole purpose of providing superannuation benefits.
Section 615 schemes can be set up easily and both the employer and employee can contribute. The level of contributions is not capped and it is possible for employees to contribute through salary sacrifice which may mitigate tax and social security in the country they are working in. Money invested grows tax free, is outside the employee's estate for IHT and beneficiaries can be nominated. The sponsoring employer should obtain a corporation tax deduction.
Who is eligible?
The scheme is for individuals of any nationality who are carrying out duties outside the UK for a UK company or associated company elsewhere in the world, irrespective of domicile or residency. They are not only for expatriates but also for individuals resident in their own country – with the exception of UK and US residents. However, UK residents with a separate and distinct contract for overseas duties can be included.
How does it work?
A Section 615(6) Trust will generally be established in the name of the employing company, similar to an individual pension arrangement in the UK for UK-resident employees.
Employer contributions
Provided certain conditions are met, the UK employer will obtain a corporation tax deduction for contributions made to the trust.
Qualifying companies
A non-UK company may make contributions into a scheme, but only if the company is associated with the UK employer (essentially common ownership between companies or a holding company or subsidiary relationship).
Investment strategy
Rather like a self-invested personal pension, individuals can choose their own investment strategy and there is a wide range of opportunities such as insurance policies, direct equity holdings, fixed interest securities, collective investment schemes, money funds, property and cash deposits.
Drawdown
The biggest attraction to a Section 615 scheme comes on drawdown of the pension. Benefits can be taken as one tax-free lump sum by UK residents from the age 55, or earlier if the employee leaves the company, but must be taken by the age of 75.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
