Spring Budget 2017 – QROPS: Introduction of a transfer charge

Under Finance Act 2004, s 169(1), transfers made to an approved Qualifying Recognised Overseas Pension Scheme (QROPS) can be made free of tax up to the lifetime allowance.

Legislation will be included in Finance Bill 2017 to apply a 25% tax charge to pension transfers to QROPS requested on or after 9 March 2017. Exceptions will be made to the charge, allowing transfers to be made tax free if the individual has a genuine need to transfer their pension where:

  • Both the individual and the pension scheme are in countries within the EEA;
  • If outside the EEA, both the individual and pension scheme are in the same country; or
  • The QROPS is an occupational pension scheme provided by the individual’s employer.

A UK tax charge will apply if within five years of the transfer, the individual becomes resident in another country so that the exemption would not have applied to that transfer.

UK tax rules will also apply to payments from funds that have had UK tax relief and have been transferred on or after 6 April 2017 to a QROPS. This includes payments made in the first five full tax years following the transfer irrespective of whether the individual is or has been UK resident in that period.

UK tax will be refunded if the individual made a taxable transfer and within five tax years, one of the exemptions applies to the transfer.

This will affect:

  • Individuals who request an overseas pension transfer on or after 9 March 2017;
  • Scheme administrators of registered pension schemes
  • Scheme managers of QROPS; and
  • Advisers who have clients who want to make an overseas pension transfer.