07 May 2015
We are increasingly being asked by individuals about the option to transfer their UK pension to a country to which they are either emigrating to or more often returning to having worked in the UK for a number of years.
Following are a few answers to common questions on this subject:
What is a Qualifying Recognised Overseas Pension Scheme (‘QROPS’)?
A QROPS is an overseas pension arrangement that can receive a transfer of your benefits from a UK pension plan potentially without incurring tax charges. HM Revenue & Customs (HMRC) in the UK requires a QROPS to broadly mirror a UK pension plan, meaning that if you do transfer your pension to a QROPS you can still receive a lump sum and income when you retire – subject to any local laws and tax treatment in the country where the QROPS is established, or where you are resident at that time.
Why would a QROPS apply to me?
If you were permanently leaving the UK to live or work overseas and you wanted to transfer your UK pension to your new country of residence.
What if I transferred my UK pension to an overseas pension that wasn’t a QROPS?
If your pension benefit was transferred to an overseas pension arrangement that was not a QROPS, the transfer payment would be treated as an ‘unauthorised payment’ and subject to significant tax charges. The charge is currently 40% of the transfer or payment and in some circumstances, a surcharge of 15% may also be due.
A further charge may apply to the administrator of the UK pension plan if transfer rules are not met and the administrator could refuse to make the transfer as a result. An administrator may also refuse to make the transfer if they have any doubt as to whether the transfer rules have been met, including whether or not the overseas arrangement is a QROPS.
How do I start this process?
You must provide information about the QROPS to the administrator of your UK pension plan before a transfer can be made. The form required is: “APSS263 Qualifying Recognised Overseas Pension Schemes – Member Information” and is available from the HMRC website (www.hmrc.gov.uk). You should always undertake thorough research into the validity of the overseas pension arrangement yourself, before doing so.
The HMRC publishes a list of current QROPS which can be found at the following link: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/424778/QROPS.pdf
What happens at the point of transfer?
The value of your total UK pension rights will be tested against the Lifetime Allowance (£1.25 million for 2015/16) at the start of the transfer process. The Lifetime Allowance is the maximum value you can accrue in UK pension plans without incurring tax charges and your UK pension administrator will tell you what percentage of the Lifetime Allowance has been used by the transfer. Any excess above this amount will be taxed at 55%.
What happens after the transfer?
UK tax charges can still apply even after you have transferred your pension overseas, dependent on how and when the retirement benefits are paid. The charges will be similar to those applied to a UK pension, so you should not look at a QROPS as a way of avoiding tax. UK tax charges will apply to payments you receive from the QROPS if you remain in the UK and for up to ten tax years after you leave the UK. You will also be subject to UK tax charges if a QROPS makes investments that would be taxable if made in the UK. Taking funds overseas means foreign tax may also apply, so you should be aware that ‘Double Taxation Agreements’ may impact on the charges.
What should I do after the transfer?
The HMRC checks the information supplied and all overseas schemes self-certify to HMRC that they meet the requirements to be a QROPS. However it is your responsibility to ensure your QROPS does and continues to meet the HMRC’s requirements, and monitor any changes that could affect your benefits in the future.
For further information please contact us on 0844 406 0027
All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs’ practice. Levels and bases of tax relief are subject to change. This is information is not provided as advice or a recommendation.
