Budget: new rules from today for overseas pension transfers

United Kingdom

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Summary and implications

Yesterday's Budget included an announcement of an immediate change to the rules for transfers to Qualifying Recognised Overseas Pension Schemes (QROPS). Transfers from a UK registered pension scheme will now attract a 25% tax charge. The new tax charge will not apply where:

  • a substantive request for a transfer to a named QROPS was made on or before 9 March 2017;
  • the member is resident in the same country as the QROPS or both the member and the QROPS are based in a country within the European Economic Area; or
  • the QROPS is an occupational pension scheme provided by the member's employer.

If one of the residence conditions is met at the time of transfer but due to a change of circumstances is no longer met during the next five tax years, then the tax charge will arise at that point.  Members are required to inform scheme administrators if they change their residence during that period. There are also provisions to tax onward transfers made from the QROPS in the subsequent five tax years.  

The member and scheme administrator (usually the trustees) will be jointly and severally liable for the tax charge so it should generally be calculated and deducted before the transfer payment is made. 

In another tightening up on overseas transfers, managers of existing QROPS have until 13 April 2017 to resubmit their undertakings to HMRC. If they fail to do this then the scheme will cease to be a QROPS and any transfer payment received by it on or after 14 April 2017 will be an unauthorised payment.

HMRC has issued detailed guidance on the new rules. There are also some new or revised forms for reporting to HMRC and draft legislation.  

Scheme administrators will need to adapt their due diligence procedures when faced with a transfer request to a QROPS. Key to this will be taking due care in establishing that any claim from a member that he falls within one of the exemptions is genuine. If an incorrect transfer is made, scheme administrators may avoid a scheme sanction charge if they can show they took "reasonable care" in establishing the correct position before making a transfer. HMRC guidance includes suggestions such as checking the location of the relevant bank account and obtaining information on scheme rules and membership and its regulatory and tax status. HMRC’s list of recognised overseas pension schemes should also be checked no earlier than 24 hours before the transfer is made.

In other budget news:

  • it was confirmed that the money purchase annual allowance (for those who have accessed flexible benefits) will be reduced from £10,000 to £4,000 from 6 April 2017;
  • there will be new registration requirements for Master Trusts to align them with the Pension Regulator's new authorisation regime; and
  • the report on the state pension age review will be published by 7 May 2017.