The overseas transfer charge is a fiendishly complicated rule that can cost expats up to a quarter of their retirement savings if they make a wrong decision about if they should pay the money or not.
The financial threat spurs many expats not to switch their UK pensions into offshore Qualifying Recognised Overseas Pension Schemes (QROPS) – which in turn could mean they miss out on the features and tax breaks they offer.
But remembering some key facts about the overseas finance charge can make the process a lot more user-friendly.
Not every pension is trapped in the overseas transfer charge net
The charge only applies to QROPS, so if you are setting up a SIPP or similar personal pension, then you have nothing to fear.
Not every QROPS is caught in the overseas transfer net
The good news is if you live in a European Economic Area country and your QROPS is based in an EEA country, then the transfer charge does not apply.
Click here for a list of EEA countries
That also goes if you and your QROPS are based in different EEA countries.
You can also breathe a sigh of relief if you live outside the EEA and you and your QROPS are based in the same country because the overseas transfer charge does not apply either.
These countries include Australia, Barbados, Guernsey, India, Isle of Man, Jersey, Kenya, Mauritius, New Zealand, South Africa, Switzerland and USA. The list is subject to change as countries can gain and lose QROPS status at short notice.
When does the overseas transfer charge apply?
Expats pay the overseas transfer charge when they live outside the EEA and in a different country to where their QROPS is based.
How much is the overseas transfer charge?
The charge is calculated as 25% of the value of the pension fund transfer. If more than one fund is consolidated into a QROPS, the charge is 25% of the aggregate fund value.
The overseas transfer charge also applies to expats making QROP- to-QROPS transfers in the same way as UK pension-to-QROPS transfers.