Chancellor Phillip Hammond is cracking down on transfers to offshore pensions by slapping a 25% tax charge on expats switching their retirement pots out of the UK.
In his Budget 2017, Hammond announced that the transfer charge on savers moving their pensions from Britain to a Qualifying Recognised Overseas Pension Scheme after March 9, 2017.
The charge is aimed to stop tax avoidance and is not a blanket expense for every QROPS transfer.
Savers escape the penalty if:
- they live in the same country as their QROPS is based
- the expat and the QROPS are both based in the European Economic Area
- the QROPS is provided by an employer
“If this is not the case, there will be a 25% tax charge on the transfer and the charge will be deducted before the transfer by the pension scheme sending the money offshore,” said guidance from HM Revenue and Customs (HMRC).
Transfer tax can be grabbed for five years
The government also made clear that QROPS pension transfers are subject to the charge and UK tax for five years after the transfer date regardless of where the retirement saver lives.
Hammond explained the measure supported the government’s aim of promoting a fairer tax system.
“It continues to allow overseas transfers from pension schemes that have had UK tax relief that are made when people leave the UK and take their pension savings with them to their new country of residence,” said the government.
HMRC reckons only a handful of QROPS pension transfer will be liable to the transfer charge out of the average 12,000 to 15,000 transfers each year.
More new QROPS rules from April 2017
Nevertheless, HMRC expects to raise £65 million from the tax charge this year and £315 million over the next five years.
The transfer charge rules will also apply to savings switches between QROPS pensions.
HMRC is also tightening the rules for providers offering QROPS offshore pensions to expats from April 6.
Providers must certify that their QROPS pass the pension age test so that they can offer freedom to access cash on the same terms as UK pensions.
The new test outlaws QROPS that offer benefits to retirement savers aged below 55 years old.