New charge targets British expat pension savers

A little noticed provision of Chancellor of the Exchequer Phillip Hammond’s Budget on Wednesday was to impose – with immediate effect – a 25 per cent tax on UK expatriates moving their retirement pots out of the country.

Relocate Editorial

9 March 2017

Chancellor Philip Hammond announced in his Budget yesterday a new charge on savers moving their pensions from Britain to a Qualifying Recognised Overseas Pension Scheme (QROPS). Effective from 9 March, the 25 per cent tax was aimed at stopping tax avoidance and achieving a fairer tax system.However, it does not apply to every QROPS transfer with exemptions applying to funds based in the same country where expats live; if both the pension saver and the fund are within the European Economic Area; or if the QROPS is provided by an employer.“If this is not the case, there will be a 25 per cent tax charge on the transfer and the charge will be deducted before the transfer by the pension scheme sending the money offshore,” said HM Revenue and Customs (HMRC).David Hartles, private client principal at chartered accountants HW Fisher & Company, commented, “Two key pension changes were hidden deep in the Red Book detail to the Budget.“While there are some limited exemptions, as of midnight people could be subject to a significant 25 per cent charge on transferring their UK pension pot to an overseas equivalent. This has the ability to affect up to a quarter of a billion pounds of pension savings leaving the UK.“There are exemptions, such as allowing for free movement of capital under EU rules, although how long this is available remains unknown.“People will also be further restricted in their ability to get tax relief on pension tax-free lump sums when recycling them.”

Huge impact on overseas transfers

Ian Neale, director at Aries Insight, told the Financial Times that the charge would have a huge impact on those looking to transfer their pension savings overseas.“A 25 per cent charge is obviously punitive. It’s a very serious deterrent, coupled with the constraints on overseas constraints generally,” he said. “The attraction of doing so is severely curtailed by this charge.”Mr Neale added that £1 million transfers in QROPS were not unusual, so a £250,000 loss represented “a huge hit”.Andrew Tully, pensions technical director at Retirement Advantage, said that the government had been “increasingly concerned about the use of these schemes for the past few years and this appears a major move to reduce their use”.

Preventing tax avoidance

But Martin Tilley, director of technical services at Dentons Pension Management, welcomed the government’s move, saying the new charge would “help prevent the inappropriate promotion of QROPS for measures other than for which they were intended”, including tax avoidance.HMRC said QROPS transfers would be subject to the surcharge and to UK tax for five years after the transfer date regardless of where the saver lived. “It continues to allow overseas transfers from pension schemes that have had UK tax relief that are made when people leave the UK and take their pension savings with them to their new country of residence,” added the government.HMRC estimated that only a handful of the 12,000–15,000 QROPS transfers made each year would be liable to the new transfer charge but still expects it to raise £65 million this year and £315 million over the next five years. The transfer charge will also apply to savings switches between QROPS pensions.For related news and features, visit our Employee finance section.Access hundreds of global services and suppliers in our Online Directory Get access to our free Global Mobility Toolkit

©2024 Re:locate magazine, published by Profile Locations, Spray Hill, Hastings Road, Lamberhurst, Kent TN3 8JB. All rights reserved. This publication (or any part thereof) may not be reproduced in any form without the prior written permission of Profile Locations. Profile Locations accepts no liability for the accuracy of the contents or any opinions expressed herein.