Brexit And The QROPS Overseas Transfer Charge

Expats wanting to transfer their UK retirement savings to an offshore QROPS have no need to worry about Brexit – for the time being.

Fears about incurring the hefty overseas transfer charge are unfounded during the Brexit transition period even though how the charge is levied is confusing.

The overseas transfer charge is a 25% tax on the value of the funds transferred when moving a UK pension to a QROPS based in a country outside the European Economic Area (EEA).

But Britain ceased to be a member of the EEA on Brexit on January 31.

Technically, that would mean any transfer to a ‘third party’ QROPS in the EEA would trigger the charge.

Third party QROPS and the overseas transfer charge

A third party QROPS allows the pension member to live in one country while moving their funds to a QROPS based in another country.

Until Brexit, third party QROPS were allowed in the EEA, so an expat could live in Spain, which has no QROPS, while their retirement money was in a QROPS in Malta.

The good news is that during the Brexit transition period, which last until December 31, 2020, the rules remain the same.

Shortly after Brexit, HM Revenue & Customs (HMRC) tweaked the rules to ensure expats in Europe remain exempt from paying the overseas transfer charge.

The new rules clearly state that if an expat lives in an EEA country or Gibraltar and makes a pension transfer to a QROPS in Gibraltar or the EEA will not pay the charge.

Transition period rules

Gibraltar is an anomaly because the British Overseas Territory is only considered an EEA member because of its legal and economic relationship with the UK.

The overseas transfer charge remains unchanged for countries outside the EEA.

The rules allow an expat in Canada or Australia to open a local QROPS without incurring the charge, but if an expat in either wanted a QROPS in a country where they are not resident, the charge would apply.

The rules may change at the end of the transition period, leaving a window of opportunity open for European expats to open a third party QROPS until the end of the year without penalty.

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  1. You Gov on Overseas Transfer Charge

    ‘1.15 You should also be aware that, where a transfer meets one of the conditions [ EEA resident to EEA Qrops scheme] and so is not subject to the overseas transfer charge at the time of the transfer, it may become chargeable later. This will occur if the conditions which were met to make the transfer tax-free cease to be met within the five full tax years following the date of transfer.
    I think this means there is a risk of the charge becoming payable.


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