UK Pension transfers to QROPS and the Overseas Transfer Charge (OTC)
From 9th March 2017, the UK’s HMRC, introduced a new piece of legislation regarding pension transfers to QROPS.
The legislation stated that any pension transfers to QROPS (from a registered pension scheme), requested on or after 9th March 2017 will be taxed at 25% of the funds’ value, unless one of the following conditions is met:
- The member is resident in the same country in which the QROPS receiving the transfer is established
- The member is resident in a country within the European Economic Area (EEA) and the QROPS is established in a country within the EEA
- The QROPS is set up by an international organisation for the purpose of providing benefits for or in respect of past service, as an employee of the organisation, and the member is an employee of that international organisation
- The QROPS is an overseas public service pension scheme and the member is an employee of an employer that participates in the scheme
- The QROPS is an occupational pension scheme and the member is an employee of a sponsoring employer under the scheme
The overseas transfer charge of 25% (known as the OTC) would also apply for transfers from QROPS – established from 9th March 2017 with new UK pension transfer money – to other QROPS (unless any one of the above exemptions were met).
Relevant Period and change of residency
If an individual changes residency after a pension transfer to QROPS occurs, then the 25% OTC could apply in these circumstances.
The Relevant period is 5 full UK tax years from the date of the original transfer to the QROPS occurred.
Should the reverse situation apply, i.e. a member has been charged the 25% and, during the relevant period, they then become resident in the same country in which the QROPS receiving the transfer is established or the member is resident in a country within the EEA (and the QROPS is established in a country within the EEA), then the charge can be reclaimed.
Brexit and UK resident QROPS members
One of the concerns, for UK resident members of an EEA based QROPS, was when the UK left the EU (on 31st January 2020) would they still qualify for an exemption to the OTC (the existing exemption being “the member is resident in a country within the European Economic Area and the QROPS is established in a country within the EEA”)?
On 3rd February 2020, HMRC updated this exemption to reflect the UK leaving the EU. It has now been clarified that (for now at least) the pensions tax charge would not be payable if the QROPS receiving the transfer is established in a country within the EEA or Gibraltar and the member is UK resident, or resident in a country within the EEA or Gibraltar.
QROPS Opportunities for UK Residents
As the legislation stands, there could be significant retirement planning opportunities, when using QROPS, for UK residents (as well as overseas residents).
If a UK resident is up to or approaching their lifetime allowance (LTA) limit, one retirement planning option could be to transfer to a QROPS. Once a transfer has been made to a QROPS it is tested for the lifetime allowance at that stage (under benefit crystallisation event 8) therefore further growth – beyond the UK’s LTA limits, would not be tested again on the QROPS fund, when benefits are taken.
The decision to transfer to a QROPS should not be based on LTA planning in isolation. There may be income, lump sum or death benefit considerations that should also be taken into consideration. It is therefore important to speak to a firm that has expertise in UK financial planning, as well as pension transfers to QROPS (such as bdhSterling) to ascertain whether this is an option for you.
Moving Forward Beyond 31st December 2020
The recent changes, made on 3rd February 2020, are in place for now but there could be further changes once the UK has transitioned out of the EU. This could impact future transfers to QROPS for UK residents (and possibly have further reaching consequences for people migrating to other jurisdictions). As experts in UK pension transfers to QROPS, bdhSterling will update our news section and would be happy to discuss this, as and when any changes arise.
If you do wish to discuss any of these matters further, please contact bdhSterling online or by phone on +44 1372 724 249 (UK) to discuss your UK pension options with you.
