QROPS Transfer Tax Introduced. Spring budget 2017.
The UK Spring Budget introduced yesterday by Phillip Hammond, has outlined significant changes to the QROPS market. The main changes were unexpected and need to be carefully considered by those with UK pensions who plan to emigrate, or have moved to live abroad and wish to undertake a QROPS transfer.
INTRODUCTION OF QROPS TRANSFER TAX
The main change related to the introduction of a 25% Transfer tax charge on the value of a transfer from a UK pension scheme to a QROPS scheme if requested on or after 9th March 2017, unless certain conditions are met including:
A) Both the individual and the QROPS are in the same country after the transfer;
B) The QROPS is in one country in the EEA and the individual is resident in another EEA after the transfer;
C) The QROPS is an occupational pension scheme is sponsored by the individual’s employer;
D) The QROPS is an overseas public service pension scheme and the individual is employed by one of the employers participating in the scheme;
E) The QROPS is a pension scheme established by an international organisation to provide benefits in respect of past service and the individual is employed by that international organisation.
Full text of the budget as it applies to QROPS can be found by clicking QROPS Transfer Charge Policy Paper
FURTHER IMPORTANT CONDITIONS TO CONSIDER
Even if one of the conditions as outlined above is met initially, UK tax charges will still apply to the transfer if, within five full UK tax years from the date of transfer, an individual becomes resident in another country so that the exemptions would not have applied to the transfer.
Payments out of transfers to QROPS post 5 April 2017 will be subject to UK tax rules for five full UK taxes following the date of transfer. Onward transfers from a QROPS will also be subject to the overseas transfer charge conditions where the original request to transfer the UK scheme to the QROPS occurred after 9 March 2017. In this case any onward transfer from the QROPS may be subject to the charge for a further five full UK tax years from the date of the original transfer to the QROPS.
QROPS SCHEME REQUIREMENTS
Where you have already set up a QROPS, new requirements will need to be undertaken in order that the QROPS can continue to be operative past 13 April 2017.
You should have already received an email from the HMRC if you have a QROPS, as the HMRC sent emails around to all QROPS holders shortly after the budget was released. If you have not received this email and already have a QROPS established, please let us know by phone/email as we can update you on the required information.
If by 13 April 2017, the HMRC has not received the new undertaking, your scheme will cease to be a QROPS. Note that the HMRC will not accept the completed undertaking by email, so please make sure to allow sufficient time for this to be posted back to the UK and received by the HMRC.
TIMING CONSIDERATIONS SUMMARISED
A) 9 March 2017 – QROPS Transfers outside the exemptions outlined above will be subject to the 25% tax charge, unless formally requested with the transferring scheme prior to that date.
B) 6 April 2017 – Transfers to QROPS undertaken from that date will need to abide by the transfer charge exemptions for benefits taken within five years of the date of transfer irrespective of how long the member has been non-UK tax resident.
C) 13 April 2017 – The date by which QROPS must confirm in writing to the HMRC that they will operate the overseas transfer charge.
IMPLICATIONS
1. QROPS Transfers made via a third country now no longer seem appropriate in the vast majority of cases. For example, it no longer makes sense for a new QROPS to be set up in New Zealand, Malta or Gibraltar for Australian tax residents;
2. Tax benefits associated with a transfer of your pension from the UK to Australia (and many other countries) still exist and can make the transfer worthwhile undertaking in many cases, but careful consideration is needed to ensure that this meets all the new rules outlined, as well as considering the range of other UK and international limits which remain applicable;
3. A UK-UK transfer should also be considered in the current market (bearing in mind your international tax residency status), as transfer values are currently at good levels, and whilst not appropriate for all can still make good sense as part of your retirement planning, even if you are not yet able to transfer your scheme abroad.
For further information on the budget, please see UK Budget Main Announcements
It is important that you seek financial advice from a specialist who can assist you with regards to your international pension planning, so you are not caught out as each person’s situation is different and needs proper consideration.