Once the dust settled, it was plain that there was a lot more to the UK's 2017 Spring Budget announcement regarding Overseas Pension Transfers than what the headlines made out.
Following the UK Spring Budget announcement on 8 March 2017, the headlines all read:
25% tax charge on Overseas Pension Transfers!!!
However, once the dust settled, it was plain that there was a lot more to it than that. Here’s an abbreviated version, you can find the full script on the government’s website.
(Q)ROPS and the New Regime
- The New Overseas Transfer Charge (OTC) does not apply to transfers that a member requested before 9 March 2017 or to funds derived from such transfers. In this context, a transfer has been requested when you have made a substantive request to the scheme administrator of your registered pension scheme, on which they are required to take action in relation to the transfer. This means that you have given the scheme administrator an instruction to transfer £X or X% of your pension funds to a named overseas pension scheme. A casual enquiry is not a transfer request. Any transfer to a QROPS requested on or after 9 March 2017 may be liable to the OTC.
- Which transfers from registered pension schemes are chargeable?
The overseas transfer charge arises on all recognised transfers to QROPS that were requested on or after 9 March 2017 if:
the member has not provided the scheme administrator with all the required prescribed information before the transfer is made, or none of the following five conditions are met:
(1) the member is resident in the same country in which the QROPS receiving the transfer is established
(2) the member is resident in a country within the European Economic Area (EEA) and the QROPS is established in a country within the EEA
(3) the QROPS is set up by an international organisation for the purpose of providing benefits for, or in respect of, past service as an employee of the organisation and the member is an employee of that international organisation. PTM112200 provides guidance on the definition of an international organisation. It does not simply mean a multi-national employer.
(4) the QROPS is an overseas public service pension scheme and the member is an employee of an employer that participates in the scheme
(5) the QROPS is an occupational pension scheme and the member is an employee of a sponsoring employee under the scheme.
- In relation to the member, ‘residence’ means residence for tax purposes. The definition of tax residence will vary from country to country. Guidance on the UK statutory residence test can be found here. Where an individual is resident in more than one state in a tax year, residence in this context is to be taken as the country of residence for the purposes of the OECD model tax convention prevailing at the relevant time. The EEA is made up of any EU member state as well as Liechtenstein, Norway and Iceland. (In the context of this question this includes Gibraltar which is considered part of the EU as part of the UK.) In addition, if, after a taxable transfer has been made, the member becomes resident in a different country, the member is required to tell the scheme administrator within 60 days of the change of residence. This requirement only applies for five full tax years following the date of the payment. They should also tell the scheme manager of the QROPS.
- The overseas transfer charge is 25% of the ‘transferred value’ where it arises on a transfer. Where the overseas transfer charge arises on a transfer from a registered pension scheme, the transferred value is the total amount of the sums and value of assets transferred after the deduction of any lifetime allowance charge due (where BCE 8 applies and a lifetime allowance charge actually arises) on the transfer.
- Post transfer charges - the ‘relevant period.’ If a transfer is not liable to the overseas transfer charge because when the transfer is made the member is resident in the same country in which the QROPS receiving the transfer is established, or the member is resident in a country within the European Economic Area (EEA) and the QROPS is established in a country within the EEA but after the transfer circumstances change so that neither of these conditions are met, the charge now arises. This only applies if the change of circumstances takes place within the relevant period of five full tax years from the date of the original transfer from the registered pension scheme to the QROPS. Five full tax years (the relevant period) is either:
- where the transfer is made on 6 April, five years from that date, or
- where the transfer is made on any other date, the period from that date until the next 5 April plus a further five years from 6 April.
There are still excellent tax planning opportunities, but careful planning, and advice is required.
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