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The Cut

A straitjacket for overseas transfers

By Clive Weber | March 20, 2017

From the blog: Gone are the days of UK scheme members moving to sunnier climes and transferring pension benefits to wherever in the world best suited.

The straitjacket for QROPS is now so tight it endangers the life of the patient

In his Spring Budget, the chancellor announced a heavy tax on transfers to non-UK pension schemes. A charge of 25 per cent is imposed unless the transfer fits within HM Revenue & Customs’ narrow new rules.

Only the following transfers will escape the 25 per cent tax (main conditions):

  • the member and QROPS are to be in the same country; or
  • the member is a tax resident in the European Economic Area and the QROPS was established in the EEA; or
  • the QROPS is an occupational pension scheme and the member is an employee of an employer participating in the scheme.

Clearly HMRC has used the EEA and the UK’s membership of it as a key concept. Whether Brexit will affect the EEA’s composition remains to be seen.

Stings in the tail

But even if the above conditions are met, the 25 per cent tax charge arises if:

  • it turns out the prescribed information has not been provided before the transfer is made and apparently even if everything else about the transfer is correct – this seems harsh; or
  • if within the full five tax years following the transfer to the QROPS, certain onward transfers occur, or the “same country” or EEA conditions no longer apply because the member/scheme’s circumstances change.

Scheme administrators must be extra cautious

Scheme administrators are jointly and severally liable with the member for the new tax charge.

Not only have they the task of ensuring the QROPS is bona fide (otherwise unauthorised payments and scheme sanction charges are likely), but having got over this hurdle, they must also now ensure the new 25 per cent tax charge does not apply.

The role of scheme administrator is not enviable.

The straitjacket for QROPS is now so tight it endangers the life of the patient. It seems a minority of cases of bad practice have caused this severe tightening. In times when mobility of labour and finances is a fact of life, the UK’s tighter grip on mainstream QROPS is moving in the other direction. 

Clive Weber is a pensions partner in law firm Wedlake Bell

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