QROPS charge may result in a drop in transfers
Claire Carey, partner at Sackers, comments:
“Transfers to overseas pension schemes have clearly caught the Chancellor’s eye. A transfer to a qualifying recognised overseas pension scheme (QROPS) requested on or after 9 March 2017 will be taxable unless, from the point of transfer, one of a number of possible conditions apply. These include that: both the individual and the pension savings are in the same country after the transfer; both the individual and the pension savings are within the European Economic Area after the transfer; or the QROPS is an occupational pension scheme sponsored by the individual’s employer.
If none of the conditions are met, there will be a 25% tax charge on the transfer, which will need to be deducted before the transfer by the transferring scheme administrator or manager. In addition, payments out of funds transferred to a QROPS on or after 6 April 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident
The Government’s objective in making these changes is to promote “fairness in the tax system”, as pensions transferred overseas have already benefitted from UK tax relief. It is also estimated to gain in the region of £60-£65 million annually for The Treasury over the next few tax years from this measure.
The Government’s figures suggest that there are between 10,000 and 20,000 transfers to QROPS a year, and that this number fell dramatically in the tax year 2015/16. Requests for transfers to QROPS may well drop further as a result of the Government’s new measures.”