It has now been over six months since HMRC implemented the Overseas Transfer Charge (‘OTC’) for pension transfers from UK registered pensions to Qualifying Recognised Overseas Pension Schemes (‘QROPS’) on 9th March 2017.
Under the measure, with effect from 9th March 2017, an overseas pension transfer from the UK will be taxable unless, from the point of transfer, both the individual and the pension savings are in the same country, both are within the European Economic Area (EEA) or the QROPS is provided by an employer. If this is not the case, then there will be a 25 per cent tax charge on the transfer value and the tax charge will be deducted before the transfer proceeds.
Should the QROPS’ member’s circumstances subsequently change within five years of the pension transfer, it will also be necessary to reassess whether or not an overseas transfer charge applies.
Many commentators predicted that the OTC would effectively spell the end of QROPS because, if an overseas pension scheme is situated in a country within the EEA, it is no longer viable for individuals residing in countries outside the EEA to request the transfer of their UK pension schemes. So where are we now?
For individuals residing within the EEA, Sovereign Pension Services Limited administers the Centaurus Retirement Benefit Scheme for individuals wishing to transfer amounts of over £100,000 and the Centaurus Lite Retirement Benefit Scheme for those transfers under £100,000 from UK pension schemes.
Both schemes are licensed and regulated in Malta by the Malta Financial Services Authority. Malta is a full member of the EU and pensions are regulated under the Retirement Pension Act 2011 (as amended). For overseas transfers for individuals who have chosen to retire within the EEA, Malta is still therefore a viable and popular jurisdiction for the administration of a QROPS.
It is also worth mentioning that individuals who had an existing QROPS set up prior to the implementation of the OTC are still able to transfer to another QROPS provider without incurring the OTC.
For those individuals who may now consider a QROPS an unsuitable pension vehicle, Sovereign offers a number of alternative solutions for retirement planning out of various jurisdictions.
In August, the UK government confirmed in its response to its ‘Pension Scams Consultation’, that while it does intend to proceed with its plans to limit the statutory right to transfer, the statutory right to transfer to a QROPS is likely to remain in place. It is understood that some of the measures will be attached to the second Finance Bill of 2017. It’s a question of ‘watch this space’, as UK legislation on the matter may be tweaked once again.
HM Treasury said, “The government does not wish to prevent legitimate transfers to overseas pension schemes. It will, therefore, consider how best to extend the criteria under which there is a statutory right to transfer to include legitimate transfers to QROPS.”
“In this context, the government notes the tightening of the rules around the tax treatment of transfers to QROPS announced in the recent Spring Budget, and will take that into consideration. In addition, it will also factor in legislation that took effect from April 2017 that means that if neither an overseas non-occupational pension scheme nor its provider is regulated it cannot be a qualifying overseas pension scheme or a QROPS.”
We don’t yet know whether the UK government will make good on this intention but one thing is certain, anyone contemplating a transfer of his or her UK pension to a QROPS should act sooner rather than later.
For further information on Sovereign’s Malta retirement planning solutions please contact Stephen Griffiths.