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Spring Budget 2017 - New tax on transfer to overseas pension schemes

The increase in the numbers of individuals moving across borders for work throughout their careers has in recent years led to a rise in the popularity of transferring pensions savings to overseas schemes.

Under the Finance Act 2004 transfers of UK pensions savings, up to the lifetime allowance, could be made free of UK tax, provided that the receiving scheme is designated as a Qualifying Recognised Overseas Pension Scheme (QROPS). In order to be qualifying the receiving scheme must deduct tax from payments in a way that is broadly comparable to the UK pension system.

However, the Government is aware that the tax treatment of retirement savings in different countries has led to the promotion of the idea of transferring pension savings with a primary objective of avoiding tax. As a result a new tax has been introduced that will impact pensions being transferred overseas by individuals who are, and intend to remain, resident in the UK.

Any transfers to QROPS that are requested on or after 9 March 2017 will potentially be subjected to a 25% tax charge on transfer. This charge will be deducted by the pension scheme administrator or manager of the transferring scheme before the transfer actually takes place. They will also apply to payments out of funds transferred tax-free on or after 6 April 2017 for five years following transfer.

The new tax will impact all transfers with the exception of those affected where:

  • Both the individual and the QROPS are in the same country after the transfer,
  • Both the individual and the QROPS are within the European Economic Area (EEA) or
  • The QROPS is provided by the individual’s employer.

This ensures protection will apply for individuals leaving the UK who are genuinely emigrating and taking their pension savings with them to their new country of residence. It is only the abuse of the QROPS that will be caught.

If you have any questions or wish to discuss any of the above, we are here to help you. Please contact Michael Lapham or your usual Mercer & Hole contact.



Date: 9th March, 2017
Author: Michael Lapham


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