So what does this mean?
As detailed above, currently when a member’s benefits or rights are transferred to a qualifying recognised overseas pension scheme (QROPS) their pension funds are tested against the available Lifetime Allowance (BCE8) and an LTA charge of 25% is applied on any excess, if the transfer value is below the available LTA then there would be no excess tax charge; this process remains.
However, in addition to any LTA charge, the whole (post BCE 8) transfer value of certain transfers to QROPS, requested on or after 9 March 2017, will be subject to an additional 25% overseas transfer charge.
The overseas transfer charge will apply 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 a country in the EEA (an EU Member State, Norway, Iceland or Liechtenstein, in the context of this Gibraltar is considered part of the EU as part of the UK) and the individual is resident in another EEA 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 S.I. 2006/206 and the individual is employed by one of the employer’s participating in the scheme
- the QROPS is a pension scheme established by an international organisation as defined at regulation 2(4) of S.I. 2006/206 to provide benefits in respect of past service and the individual is employed by that international organisation. More guidance on this is given in PTM 112200 as this does not simply mean a multi-national employer).
Finance Act 2004 section 244l
If the transfer is not liable to the overseas transfer charge at the point of transfer, UK tax charges will apply 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 a change of circumstances means that 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 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).
Scheme managers of existing QROPS needed to decide whether or not they wished their scheme to continue to be a QROPS following the introduction of the overseas transfer charge. If they wished to continue they had to make an extra undertaking to HMRC to operate the overseas transfer charge by the 13 April 2017. If HMRC did not receive the revised undertaking the scheme will have ceased being a QROPS on 14 April 2017. There is no right of appeal if a scheme stopped being a QROPS in these circumstances. Payments out of funds transferred to a QROPS on or after 6 April 2017 will be subject to UK tax rules for ten tax years after the date of transfer, regardless of where the individual is resident.
HMRC will provide guidance setting out how the new tax charge will work and the new obligations.