As a surprise move, and announced to be in line with the government’s objective of promoting fairness in the tax system, transfers to qualifying recognised overseas pension schemes (QROPS), requested on or after 9 March 2017 will be taxable at the rate of 25% unless, from the point of transfer, both the individual and the pension savings are in the same country, both are within the European Economic Area (EEA) or the QROPS is provided by the individual’s employer.
Strict measures have been put in place to ensure compliance as both the scheme administrator of the registered pension scheme making the transfer and the scheme manager of the QROPS are jointly and severally liable to the new 25% tax charge. Where there is a tax charge, they are required to deduct the tax charge and pay it to HMRC.
Advisers must now take this new tax charge into account if they have clients who want to make an overseas pension transfer.
QROPS providers need to submit a revised undertaking to HMRC by 13 April 2017, if not, the scheme will stop being a QROPS from 14 April, giving them little time to take the necessary action.
The changes also widen the scope of UK taxing provisions. Following a transfer to a QROPS on or after 6 April 2017, the extended taxing provisions on payments out of QROPS apply on and after 6 April 2017 to payments out of those transferred funds in the five tax years following the transfer.
These changes are not meant to impact on overseas transfers from pension schemes that have had UK tax relief that are made when people leave the UK and take their pension savings with them and settle in their new country of residence. However it can be difficult in practice to achieve this because of restrictions which other countries have on pension transfers. Equally the changes do not apply to transfer of pension savings that have already been made to QROPS.
Legislation will be introduced in Finance Bill 2017 to reflect this and also HMRC will provide guidance setting out how the new tax charge will work and the new obligations.
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