The government has confirmed in today’s Budget it will align the tax treatment of foreign and domestic schemes.
According to documents published on the Treasury’s website, transfers to qualifying recognised overseas pension schemes (QROPS) will be subject to a 25% tax charge from 9 March.
Similarly, the policy will applies to payments out of QROPS and cover the period of five full tax years following the date of transfer, from 6 April.
The measure first announced last November in the Autumn Statement is designed to “support the government’s objective of promoting fairness in the tax system”, said the Treasury.
It estimates the changes will bring £300m in revenue from 2017/18 to 2021/22 and affect a small number of the 10,000 to 20,000 transfers to QROPS each year.
Individuals and households with UK pension savings who intend to transfer those pension savings outside the European Economic Area (EEC) to a pension scheme in a country other than their country of residence will be affected by these changes.
“This is an interesting measure to address the lack of a residency test. It is a deterrent to scammers and people who are moving their benefits to take advantages of different pension regimes.”
Dentons Pension Management director of technical services Martin Tilley added: “The widening of benefit options and reduction in taxation of death, both pre and post age 75, had already made the transfer of pension savings to QROPS less attractive and these measures should thwart all but the genuine cases of change of domicile.”
Prudential head of technical Les Cameron said: “The government has been gradually reducing the attractiveness of QROPS for a number of years but this new 25% charge, which applies to some transfers from midnight tomorrow, has come out of the blue. Some transfers will still be able to go ahead but others will need to be stopped.
“Many will no doubt pause transfers until the detail of today’s announcement can be fully considered. The last thing anyone wants is to incur an unplanned 25% tax charge or possibly more if their intended QROPS decides to deregister themselves. This is high-value business and time needs to be taken to consider the full impact of today’s announcement.”
Retirement Planner‘s sister title Professional Adviser has again teamed up with Cofunds, the UK’s largest platform, and experts from Technical Connection for a special ‘morning after’ webinar to discuss whatever changes the Budget may bring and how they could affect advisers and their clients. You can register here now and then tune in on Thursday 9 March at 11am.
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