A series of controversial rule changes have seen 410 Qualifying Recognised Overseas Pension Schemes (QROPS) close and nine countries lose their QROPS status over the past few days.
Some of the rules impact retirement savers and other QROPS managers, but they can be confusing.
Here are the answers about some of the most frequently asked questions about how QROPS transfer tax rules have changed in 2017.
What is the QROPS transfer tax?
The transfer tax applies to retirement savers switching their pension funds out of the UK to a QROPS or between QROPS pensions. The tax is set at 25% of tax-relieved funds transferred, which are money paid into a UK scheme that have received pension contribution relief.
Are all QROPS transfers taxed?
No. There are several types of transfer that are exempt from the 25% charge:
- Pension savings in the a QROPS before March 9, 2017
- Pension savings in another QROPS before March 9, 2017 or from that date on
- The QROPS transfer was requested before March 9, 2017
- The original transfer from a pension was more than five tax years ago
- The transfer charge was paid on a previous transfer and hasn’t been refunded
- The member lives in the country where the QROPS receiving the transfer is based
- The member lives in a European Economic Area (EEA) country and the QROPS is based in another EEA country
- The QROPS is an occupational pension scheme and the member worked for the sponsoring employer at the time of the transfer
- The QROPS is an overseas public service scheme and the member works for an employer that participates in that scheme at the time of the transfer
- The QROPS is a pension scheme of an international organisation and the member works for that international organisation at the time of the transfer
How is the transfer charge paid?
A retirement saver must their existing pension administrator or QROPS manager if the transfer tax applies – or to provide the information to allow the manager to make the decision.
The transferring scheme should deduct the tax.
Is there a handy way to avoid the transfer tax?
Yes, but it is a self-invested personal pension (SIPP) not a QROPS.
The tax charge only applies to QROPS, so does not impact an expat opening a SIPP. However, although SIPPS and QROPS are similar pensions, expats who are not UK resident lose the benefits of tax relief on their retirement savings and are also affected by the £1 million lifetime allowance and £40,000 tapered annual contribution cap.
If my pension is on the QROPS List am I OK?
Not necessarily. The list is not ‘approved’ by HMRC and is just a database of QROPS providers notifying the tax man that their schemes meet the rules of a QROPS.
Expats should check to make certain the scheme meets the rules, because if they later find out that the pension is not a QROPS, HMRC will levy a cash penalty starting at 55% of the fund’s transfer value plus interest.
Does the transfer tax apply in Europe?
The rule is if you or your QROPS are based in the same European Economic Area nation, the transfer charge does not apply.
The list of EEA countries covers all the European Union nations, including the UK until March 2019 and Iceland, Liechtenstein and Norway.
Does the transfer tax apply outside Europe?
Yes, but not if expats live in the same country as their QROPS is based.
So, an expat in Australia can have an Australia QROPS, but will be taxed if the transfer is to a Hong Kong QROPS.
I live in an EEA country and have an EEA QROPS but plan to move outside the EEA, do I pay the transfer tax?
Only if you have held the QROPS for five tax years or less.
What if I work for an NGO or have an employer QROPS?
These are exempt from the transfer tax.
How do I know if I should pay the transfer tax?
Your QROPS advisor and provider should be able to help, as they need to know to make sure you pay the tax if liable.
If you want to check for yourself, go through the bullet points in Are all QROPS transfers taxed? Above.
Can I claim a transfer tax refund?
Yes, providing a refund has not already been paid and the claim is within five tax years of the original transfer attracting the charge.
A refund is paid if an expat can prove to HMRC that they have now moved to the country where their QROPS is based or become an EEA resident and their QROPS is also based within the EEA.