09 Mar, 2017
Budget 2017: Offshore pension transfers
Those looking to move a UK pension overseas will now have to pay a 25% tax charge under a dramatic crackdown on pension transfers, as announced in the budget yesterday.
The tax charge will apply to individuals wishing to transfer retirement funds into a qualifying recognised overseas pension schemes (QROPS) on or after March 9 2017, the government said.
However, the 25% tax charge will not apply if you match the following criteria; From the point of transfer, both the individual and the offshore pension scheme are in the same country or both are within the European Economic Area (EEA), or the QROPS is provided by the individual’s employer.
“If this is not the case, there will be a 25% tax charge on the transfer and the charge will be deducted before the transfer by the administrator or manager of the pension scheme making the transfer,” the government said.
The government also announced that any payments out of funds transferred to a QROPS on or after April 6th 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is residing. This means that UK tax charges would also apply to a tax-free offshore pension transfer if, within five tax years, an individual becomes resident in a different country.
Chancellor Philip Hammond said the new measures supported the government’s objective of ensuring fairness throughout the tax system.
The government said, “It continues to allow 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 to their new country of residence”.
Rachel Vahey, product technical manager at Nucleus, the investment platform, said: “This is a real crackdown on those pension transfers made overseas just to gain the benefit of different tax regimes”.
“From today, any new requests to transfer overseas will face a 25% charge unless the transfer is for ‘genuine’ reasons. Situations such as where the person wants to transfer their pension to their new employer’s scheme, or to a pension scheme in the EEA are all allowed without charge”.
“But where the transfer is to merely take advantage of different pension tax rules the chancellor is coming down heavy”.
The Treasury said only a “minority” of the projected 10,000-20,000 transfers to QROPS every year would be subject to the new overseas transfer charge.
However, in policy documents published in conjunction with the Budget, it also estimated the transfer charge would raise £65m in tax revenue in its first year and £315m over the five years from 2017/18.
“As of midnight, people could be subject to a significant 25% charge on transferring their UK pension pot to an overseas equivalent,” said David Hartles, private client principal at chartered accountant HW Fisher.
He said, “This has the ability to affect up to a quarter of a billion pounds of pension savings leaving the UK”.
Andrew Tully, pensions technical director with Retirement Advantage, a pension provider, said the move appeared to be a “significant shutting down” of the QROPS market.
He continued, “The government has been increasingly concerned about the use of these schemes for the past few years and this appears to be a major move to reduce their use”.
Today's earlier news - Budget 2017: No rethink on NI rises