How an Overseas Transfer Charge Affects a QROPS Transfer
If you are thinking about transferring your pension funds into a QROPS you must remember that it may be subject to an Overseas Transfer Charge (OTS). The amount of money being transferred is an important factor in assessing whether a QROPS transfer is the best option for you. Will a QROPS transfer still be viable if it is subject to an OTS?
What is the OTS?
The Overseas Transfer Charge came into force 9 March 2017 and is applied to QROPS transfers except in special circumstances where such transfers are exempt. It is usually applied to transfers to and from a QROPS and is charged at 25% of the “transferred value”, the amount being transferred.
The tax is applicable to transfers into a QROPS, whether the source is a registered pension scheme, another QROPS or a scheme that once qualified as a QROPS. It is not applicable to transfers that were requested before 9 March 2017, nor is it applicable to funds derived from UK pension transfers to QROPS before 9 March 2017.
Change of circumstances
If certain changes in circumstances occur within the first five years after a QROPS transfer has taken place, a transfer that was not subject to an OTC at the time of transfer could become chargeable and would have to be paid. Conversely a person may be eligible for a refund on an OTC, paid at the time of the transfer, if changes in circumstances, within the first five years meant they were no longer subject to the charge.
In the former case a “post transfer charge” is applied. For example, one reason for OTC exemption is where the member is resident in the same country in which the QROPS receiving the transfer is based. Another would be because the member is resident in a country within the European Economic Area (EEA) and the QROPS is established in a country within the EEA. If, within five years of the transfer, the circumstances change so that neither of these conditions are met, the OTC would be payable.
When is the OTC not payable?
The rules state that the Overseas Transfer Charge must be paid where the member has not provided the scheme administrator with all the required prescribed information before the transfer is made. Note that both the member and the scheme administrator are jointly and severally responsible for the charge where it is applicable. A well established and highly experienced firm such as bdhSterling will guide you through the process and ensure that no stone is unturned in preparation for the QROPS transfer.
A QROPS transfer charge is only payable where none of these conditions are met:
- Funds are being transferred to a QROPS in the same country that the member is residing.
- Funds are being transferred to a QROPS that is established in a country within the European Economic Area (EEA) and the member is also a resident in a country within the EEA.
- The QROPS has been set up by certain international organisations (not just a multinational employer) in order to provide benefits for current service or in respect of past service as an employee of the organisation and the member is an employee of that international organisation.
- The member is an employee of an employer that is participating in an overseas public service pension scheme.
- The QROPS is an occupational pension scheme and the member is an employee of a sponsoring employer under the scheme.
Check what residence means
Remember that in relation to whether or not an OTC is payable on a QROPS transfer, the term “residence” refers to “residence for tax purposes” and the definition of tax residence will vary from country to country.
Exemption on QROPS transfers requested before 9 March 2017
Where a transfer request has been made before 9 March 2017 then the OTC does not apply but this rule does not include casual enquiries. A definite instruction must have been given to the scheme administrator to transfer a sum of money or a percentage of a pot from a registered pension scheme to the QROPS.
If a QROPS transfer requested before 9 March 2017 is not completed and is subsequently transferred to another QROPS other than the one mentioned in the original request, the OTC would still be applied.
Transfers that are not recognised will not be subjected to an Overseas Transfer Charge, but they would be classed as unauthorised transfers and would therefore be subject to a charge of at least 40% of the transfer value.
Consider the impact of OTC
A QROPS could be the perfect option for you but be sure to investigate all the angles. An Overseas Transfer Charge of 25% on transferred funds is not insignificant. It may be the difference between whether the QROPS transfer is right for you or not.
You also need to consider the possibility that you may be liable to an OTC up to five years after the transfer has been made. These implications make it all the more important to correctly manage your pension funds before any QROPS transfer. The larger the transfer value, the larger the OTC, if the transfer is chargeable, but the more money you will you still be left with in the QROPS when the transfer is complete.
Expert advice is recommended to find out if your QROPS transfer is going to be subject to OTC. Contact bdhSterling today to find out how we can assist you.