British expats wanting to transfer their UK private pensions abroad could be hit with a 25% tax charge, as a result of changes announced by HM Revenue & Customs (HMRC) in the UK Budget 2017 yesterday.
Amongst a number of announcements, there was an update that specifically related to QROPS and the practice of pension transfers.
In an effort to ‘create fairness in the tax system’, HMRC has announced that they will introduce a 25% tax charge, on UK pension transfers to QROPS, from 9 March 2017, and in doing so crack down on individuals who are actively managing their UK tax obligations by moving their pensions to another jurisdiction.
It is unlikely that many bdhSterling clients will be affected as expats who fulfil certain criteria will be exempt from these charges – including those who have a ‘genuine need to transfer their pension’.
Specifically the 25% tax charge will not apply if the member falls into one of the following categories:
- The QROPS is in the European Economic Area (EEA) and the Member is also resident in an EEA country.
- The QROPS and Member reside in the same country or territory.
- The QROPS is an employer sponsored occupational scheme, overseas public service pension scheme or a pension scheme established by an international organisation.
The 25% Tax charge will also not apply on pension transfers after the ‘Relevant Period’ has expired:
The ‘relevant period’ is a period counted from the date of the original transfer, being 5 complete UK tax years from the date of transfer from the UK pension to the QROPS.
For example, if the transfer is made on 13 June 2017, the relevant period runs until 5 April 2023 (13 June 2017 – 5 April 2018 plus 6 April 2018 – 5 April 2023).
Any onward transfer, made from a QROPS, after the relevant period has expired, cannot be liable to the overseas transfer charge.
So what is the impact if you are in Australia?
Basically, people living in Australia will be unaffected if they are using an Australian QROPS.
To elaborate:
- For people living in Australia and looking to transfer to an Australian QROPS, a transfer can still proceed without a tax charge if the member meets a range of member requirements (as outlined below).
- EEA members using the QROPS of another EEA member QROPS, will not pay a tax charge (this may however change when the UK leaves the EU).
- Australian residents looking to transfer their UK pensions to a New Zealand, Gibraltar or Malta QROPS (even those schemes that have been ‘signed off’ as Australian Foreign Superannuation Funds) will not be able to use those schemes without incurring a 25% tax charge.
- For future QROPS to QROPS transfers (where the original transfer to the QROPS related to a transfer from a UK Registered Scheme which was requested on or after 9 March 2017) the member will need to fall in to one of the three categories listed above to avoid the tax charges.
- All existing QROPS need to complete HMRC form APSS240 by 13 April 2017 or have their QROPS status removed. HMRC have already began the process of contacting schemes.
For a transfer to take place without a tax charge, the following additional member’s requirements need to be forwarded to HMRC:
- The scheme administrator requires a range of prescribed information from the member
- Prescribed member’s written acknowledgement i.e. the understanding of the implications of a transfer to a non-QROPS.
A full list of these requirements can be found here.
For those that have established SMSF’s they will need to communicate to HMRC as to whether they wish their SMSF to continue to be a QROPS. This will naturally be a requirement if the scheme still intends to receive further pension transfers from the UK.
So what happens if you fall outside the amendments?
For those transfers that fall outside the amendments, it is the joint and several liability of the member and scheme administrator to pay this transfer charge. Details of paying the charge can be found here.
What do you need to do?
The amendments will significantly affect advice from firms that exclusively use offshore QROPS funds for clients in Australia as well as those that market ‘Foreign Superannuation’ QROPS funds as an alternative.
bdhSterling is not an example of such a firm and can provide alternative solutions to clients who would like to explore their tax free pension transfer options within the country they plan to retire in.
If you have a private UK pension scheme/s (excluding the State Pension), your next step would be to work out whether or not you meet the conditions that make you exempt from these new tax charges. To find this out, and discuss your individual circumstances and how the changes could affect you and your pension, contact a bdhSterling adviser here.
Download your UK Pension Transfer Starter Kit
