UK Pension Transfers Hit With 25% Tax Charge

QROPS Tax Charge

British expats living abroad and foreign nationals based in the UK face being stung by a new 25 per cent tax charge if they move their pensions out of the UK.

New rules, which came into effect on 9 March, 2017 after being announced in the 2017 UK Spring Budget, will see the charge levied when retirement funds are transferred outside the UK, unless they meet strict criteria.

The move is the latest in a series of crackdowns by the UK government aimed at reducing the abuse of offshore pension schemes for tax avoidance.

Under the measure, individuals outside the European Economic Area (EEA) and looking to transfer a UK pension via a Qualifying Recognised Overseas Pension Scheme (QROPS) are most at risk of triggering the 25 per cent tax charge.

Uncertainty also remains over how Brexit will impact transfers within the EEA.

Legislation will be introduced in the Finance Bill 2017 so that transfers to a Qualifying Recognised Overseas Pension Scheme or ‘QROPS’ requested on or after 9 March 2017 will be taxed at a rate of 25 per cent unless at least one of the following applies:

  • Both the individual and the QROPS are in the same country after the transfer.
  • The QROPS is in one country in the EEA (an EU Member State, Norway, Iceland or Liechtenstein) and the individual is resident in another EEA country after the transfer.
  • The QROPS is an occupational pension scheme sponsored by the individual’s employer.
  • The QROPS is an overseas public service pension scheme as defined at regulation 3(1B) of Statutory Instrument (SI) 2006 No. 206 and the individual is employed by one of the employers participating in the scheme.
  • The QROPS is a pension scheme established by an international organisation as defined at regulation 2(4) of SI 2006 No. 206 to provide benefits in respect of past service and the individual is employed by that international organisation.

Other legislation to be introduced:

  • UK tax charges will apply to a tax-free transfer if, within five tax years, an individual becomes resident in another country so that the exemptions would not have applied to the transfer.
  • UK tax will be refunded if the individual made a taxable transfer and, within five tax years, one of the exemptions applies to the transfer.
  • the scheme administrator of the registered pension scheme, or the scheme manager of the QROPS making the transfer, is jointly and severally liable (with the member) to the tax charge and, where there is a tax charge, they are required to deduct the tax charge and pay it to HM Revenue and Customs (HMRC). This applies to scheme managers of former QROPSs that make transfers out of funds that have had UK tax relief if the scheme is a QROPS on or after 14 April 2017 and at the time the transfer to the former QROPS is received.
  • payments out of funds transferred to a QROPS on or after 6 April 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident.

Are you considering transferring your UK pension, or currently hold a QROPS?

Make sense of the changes and speak to Intelligent Investments today for a comprehensive, no obligation review of your retirement provisions.

Email insight@intelligentinvestments.biz

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