I’m over 75 and have a SIPP. My beneficiaries are my daughters, one who has a SIPP already, and one who doesn’t as she lives in France.

So, when I die, the daughter based in the UK can receive her share in her SIPP.

Can you tell me what happens to the other daughter’s share, the one who lives in France?  Could she open a SIPP with a UK provider to accept the proceeds, and hence keep the tax benefits on growth. Or how is it paid to her in France? 

John

Rachel Vahey, AJ Bell Head of Public Policy, says:

The rules around whether foreign-based individuals can set up, and/or accept payments from SIPPs in the UK can be complicated.

Let’s start with some basic groundwork. When someone dies, their dependants or those they have nominated to receive inherited pension pots – their beneficiaries – usually have three options. They can take the money as a lump sum; they can set up a beneficiary’s drawdown plan; or they can buy an annuity with the pension pot.

If the beneficiary lives abroad, then the options open to them will depend upon the pension provider or pension scheme’s rules and terms and conditions.

If we first consider setting up a beneficiary’s drawdown plan – in theory, the pension tax laws generally allow anyone to set up a UK pension plan. But in practice, it may not be as simple. Many pension providers’ terms and conditions will have restrictions. So, it’s worth checking with the individual provider.

For example, many pension providers will simply not allow any non-UK residents to set up a SIPP. This is because the pension contract is between the pension provider and the individual, and the financial services regulator – the FCA – requires that the provider is satisfied that it’s meeting the regulatory requirements of the specific country in which the individual is living.

WHAT HAPPENS IF THE SIPP PROVIDER WON’T ACCEPT AN APPLICATION

If the SIPP provider won’t accept an application, then the beneficiary may want to transfer the inherited pension pot to another UK registered pension scheme that can accept an inherited drawdown transfer for someone living where the beneficiary lives. Or they may consider becoming a member of a qualifying recognised overseas pension scheme (QROPS), if they can both find one which is appropriate for where they live and one that accepts transfers of inherited drawdown transfers.

But in practice, many beneficiaries living abroad will probably be left with the option of accepting a lump sum payment (without setting up a SIPP) and lose the flexibility of being able to take an income from the inherited pension as and when it suits them.

How any lump sum is paid to them again depends upon the pension provider. Theoretically, the lump sum could be paid directly to a bank in the beneficiary’s country of residence in the local currency using the Transcontinental Automated Payment Service (TAPS), or via a cheque in pounds sterling, or paid in pounds sterling into a UK bank account.

But in practice the options available depend on the provider. Pension providers may insist on only paying to a UK bank account. This is for practical reasons; payments overseas require more hands-on administration and can be time consuming. But providers’ decisions can also be related to helping stop money laundering and the worry foreign bank accounts may be used for that reason.

If a pension member dies after the age of 75 then any payments made to their beneficiaries will be taxed as earned income.

A beneficiary living abroad may be a non-UK taxpayer, so they may be eligible to receive their UK pension without deduction of UK income tax.

However, in practice the UK tax will often be deducted before the lump sum is paid and the beneficiary will have to reclaim the tax.

As you can see this is a complicated area. You and your daughter may want to speak to your pension scheme as well as a specialist tax adviser who can help you understand the options, and how any inherited pension money can be paid to your loved ones. Or you may want to consider an alternative way of passing on wealth when you die.

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