The recent UK Budget announced the imposition of a new tax charge on certain overseas pension transfers. The measures require Administrators of all existing Qualifying Recognised Overseas Pension Schemes [QROPS] to submit a revised undertaking to HMRC prior to 13 April 2017.
All transfers from the UK to a QROPS requested on or after 9 March 2017 are subject to an upfront tax charge of 25% of the value of the fund. The tax charge does not apply where:
- The individual and the QROPS are resident in the same country after the transfer.
- The QROPS is in one EEA* (European Economic Area) country 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 and the individual is employed by an employer participating in the scheme.
- The QROPS is an international organisation and the individual is an employee of that organisation.
*The EEA consists of EU Member States, Norway, Iceland and Liechtenstein
In simple terms, overseas transfers continue to be allowed when individuals leave the UK and take their pension savings with them to their new country of residence. Where a 25% tax charge occurs, it must be deducted and remitted before the transfer by the administrator of the transferring scheme. The measure widens the scope of existing UK taxing provisions so that, following a transfer to a QROPS on or after 6/4/2017, they will apply to payments out of the transferred funds in the 5 years following the transfer.
The intention is to prevent avoidance of the “tax free” transfer conditions by extending same to any onward transfer from a QROPS.
Payments out of funds transferred to a QROPS on or after 6/4/2017 will be subject to UK tax rules for 5 years regardless of where the individual is resident. The QROPS administrator is liable to deduct and remit any tax due. Presumably failure on the part of a QROPS administrator to do so will result in removal of approval status by HMRC.