The QROPS overseas transfer charge is an exit tax on funds switched out of a UK pension or another QROPS that effectively takes away the retirement saver’s tax relief on savings.
The UK government was concerned that many transfers abroad were for tax avoidance.
The main problem was savers could make contributions to a UK pension and receive relief that increased value of the fund from HMRC.
Savers could then switch this tax-relieved money to an offshore pension and draw out the cash.
To combat this, the overseas transfer charge demands switching money meets one of five special conditions.
If they do not, the transfer is taxed at 25% of the amount of money moved to a QROPS.
QROPS overseas transfer charge conditions
The conditions are:
- If living outside the European Economic Area, the retirement saver must live in the same country as the QROPS is based
- If living with the European Economic Area, the retirement saver and QROPS can be based in different countries if both are within the EEA
- QROPS set up by international organisations, such as charities and government agencies, and the retirement saver is an employee of the organisation running the scheme
- The QROPS is a public service pension and the retirement saver is an employee of the organisation running the scheme
- The QROPS is an occupational scheme and the retirement saver is an employee of the organisation running the scheme
Gibraltar is an EEA country but some other previously popular QROPS destinations such as Guernsey, Jersey and the Isle of Man are not.
Paying the QROPS overseas transfer charge
The rules mean that where a retirement saver is transferring a pension to a country where they do not live, the overseas transfer charge will apply unless the pension is an employer’s scheme or the pension and retirement saver are in an EEA country.
Typically, the pension provider managing the fund will deduct the overseas transfer charge before switching the money offshore.
The charge also applies to fund transfers between QROPS, not just transfers out of the UK.