HMRC has just released an update on the numbers and value of transfers to Qualified Recognised Overseas Pension Schemes (QROPS). These schemes are used by people who are moving abroad and looking to transfer their UK pension.
The HMRC data shows the number of pension transfers to QROPS remained relatively flat in 2018/19 tax year at 5,000 transfers (up 6%) worth a total of £640m (down 14%) compared to the previous tax year (4,700 transfers worth £740m). The market peaked in 2014/15 with 20,100 transfers valued at £1.76bn. The number of transfers has reduced substantially over the following tax years and for 2017/18 tax year, a new tax charge of 25% applied.
Andrew Tully, Technical Director at Canada Life, commented:
“The transfer charge has largely done its job in quelling the appetite of people who may have been considering moving their pension under a QROPS arrangement. The ability to flexibly access pensions under UK rules may also have had an impact as effectively there are no restrictions after the age of 55, apart from the obvious tax rules.
“There may be limited circumstances where transferring a pension overseas, even with the 25% tax charge, can make sense. This is where seeking specialised financial advice is critical to ensure all relevant rules are adhered to from both a UK perspective but also for the receiving arrangement. An adviser will also ensure you will not fall prey to the ever present scammers.”
QROPS transfer charge explained
In the March 2017 Budget, then Chancellor Philip Hammond introduced a 25% tax charge for qualifying pension transfers. The charge was applied to 30 transfers in the tax year 2017/18 raising tax of £1.4m1. It was hoped the introduction of a charge would discourage transfers from UK schemes where the person is seeking to reduce their tax liability by moving their pension wealth to a new jurisdiction. Government figures published at the time suggested the measure would raise £65m for the Exchequer in 2017/182. The tax charge is typically applied where the QROP resides outside the EEA3.
Broadly speaking the transfer charge applies unless the member is resident in the same country in which the QROPS is established, or the member is resident in a country within the European Economic Area (EEA) and the QROPS is established in a country within the EEA.
1. Freedom of Information request submitted by Canada Life to HMRC and answered on 17th August 2018. Copy available on request.
3. The tax charge applies unless both the individual and the QROPS are in the same country after the transfer, or the QROPS is in one country in the EEA and the individual is resident in another EEA after the transfer. There are some specific situations when the charge can be waived.