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QROPS FOI reveals significant fall pension transfer charge

 

  • Freedom of Information1 request reveals 24 overseas transfer charges paid to HMRC in 2018/19 tax year worth £760,846
  • A fall of 46% in revenue and a 20% reduction in transfers compared to the previous tax year
  • Less than 0.5% of QROPS transfers attract a charge (24 out of 5,000 transfers in 2018/19)

 


A Freedom of Information1 request submitted by Canada Life reveals the impact of the overseas transfer charge applied to certain pension transfers to Qualifying Recognised Overseas Pension Schemes (QROPS). These schemes are used by people who are moving abroad and are looking to transfer their UK pension.


The 25% transfer charge, introduced in the Budget of March 2017, was levied on 24 transfers in the tax year 2018/19 raising £760,846 in tax. This compares to the previous tax year where 30 transfers attracted charges totalling £1.4m. The amount of tax raised is well below what the Government estimated2 it would raise when the charge was announced.


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.


Andrew Tully, technical director at Canada Life, commented:


“It looks like the QROPS charge has done the job in limiting the appetite for moving pensions outside the UK to destinations other than the EEA. The pension freedoms will also have had an effect in the general decline in the number of transfers to QROPS, simply because of the greater flexibility in how people can access their pensions in the UK.


“The number of pension transfers attracting a charge is a very small proportion of the overall number of transfers to QROPS, and as a result the amount of tax raised is very low. However, I’ve no doubt the Treasury will be pleased another tax loophole has effectively been closed and further tax leakage prevented.”


QROPS transfer charge explained


In the March 2017 Budget, then Chancellor Philip Hammond introduced a 25% tax charge for qualifying pension transfers. 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 2017/18, and £60m in 2018/19. The tax charge is typically applied where the QROP resides outside the EEA2.


According to data from HMRC the number3 of pension transfers to QROPS peaked in 2014/15 with 20,100 transfers valued at £1.76bn. The number of transfers has reduced considerably over following tax years, and for 2018/19, HMRC recorded 5,000 transfers worth £640m.


Sources:

  1. Freedom of Information request submitted by Canada Life to HMRC and answered on 20th August 2019. Copy available on request.
  2. HM Government Spring Budget 2017: policy costings - page 17 
  3. HM Revenue & Customs - Qualified Recognised Overseas Pension Schemes (QROPS) - July 2019 Official Statistics
  4. 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.

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Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority.

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Stonehaven UK Limited and MGM Advantage Life Limited, trading as Canada Life, are subsidiaries of The Canada Life Group (U.K.) Limited. Stonehaven UK Ltd is authorised and regulated by the Financial Conduct Authority. MGM Advantage Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority.