Overseas Transfer Charge

Summary

If your client leaves the UK, this does not automatically remove their potential liability for UK taxes connected to a pension fund or benefit entitlement transferred out of the UK to a Qualifying Recognised Overseas Pension Scheme (QROPS). In this article we will look at the overseas transfer charge introduced by the UK government on 8 March 2017 and how this may affect your clients.

Facts and analysis

You may have clients who are no longer UK resident or who expect to leave the UK at some time in the future. These clients still need to consider what to do with any existing UK pension arrangements. Apart from the other potential issues we have covered in previous articles you will also have to take into account this new tax charge.

Overseas transfer charge

The UK budget of 8 March 2017 changed the rules relating to transfers from UK registered pension schemes to a QROPS.

For some transfers to a QROPS a 25% tax charge has been introduced which the UK scheme is responsible for deducting, reporting and paying to HMRC. Even where the tax charge doesn’t apply on the initial transfer there are circumstances where it can apply at any point in time before the end of the fifth complete tax year following the transfer and we will look at these later in this article.

The overseas transfer charge does not apply to transfers that the member requested before 9 March 2017 or to funds derived from such transfers. HMRC define such a request as:

“A transfer request is made when a member has made a substantive request to the scheme administrator of their pension scheme on which the scheme administrator is required to take action in relation to the transfer. This means an instruction from the member to transfer £X or X% of their pension funds to a named overseas pension scheme.”

When would the overseas transfer charge apply?

The overseas transfer charge does not apply to transfers that the member requested before 9 March 2017 or to funds derived from such transfers.

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
• ·none of the following five conditions are met:
  • the member is resident in the same country in which the QROPS receiving the transfer is established
  • the member is resident in a country within the European Economic Area (EEA) and the QROPS is established in a country within the EEA
  • 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.
  • the QROPS is an overseas public service pension scheme and the member is an employee of an employer that participates in the scheme

• the QROPS is an occupational pension scheme and the member is an employee of a sponsoring employee under the scheme.

Even where the tax charge doesn’t apply on the initial transfer there are circumstances where it can apply at any point in time during the “relevant period” (before the end of the fifth complete tax year following the transfer). It may also be a case of the tax charge applies on the initial transfer but is able to be reclaimed at a later point in time.

When could the transfer charge apply in the future?

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, within five full tax years from the date of the original transfer from the registered pension scheme to the QROPS, circumstances change so that neither of these conditions are met, the charge now arises.

When can the transfer charge be reclaimed?

If circumstances change so that a transfer that was chargeable to the overseas transfer charge would have not been chargeable had the new circumstances existed at the time of the transfer, a repayment can be claimed. It is not relevant if the change of circumstances takes place after the original transfer or after any onward transfers.

This only applies if the change of circumstances takes place within the ‘relevant period’ from of the original transfer to the QROPS.

Member provided information

As you can see from above, the tax charge will apply if the member has not provided the scheme administrator with all the required prescribed information before the transfer is made. How the member provides this information is not laid down in the legislation, however, it would be normal for them to issue the client with HMRC’s form APSS263.

This form would enable your client to give their scheme administrator the information they need to transfer sums or assets held within a registered pension scheme to a QROPS and make the decision as to whether the transfer is a taxable transfer or not.

Next steps

• Clients wishing to transfer overseas may need assistance when looking for a suitable QROPS scheme to accept their transfer.

• Clients wishing to transfer overseas may need assistance when looking to see if the overseas transfer charge applies to their transfer.

Important information

Although the above outlines the UK overseas transfer tax charges your clients may encounter if they transfer their UK pension fund overseas, we are not able to comment on the requirements of any overseas tax authorities or legislation. It is recommended that appropriate tax and/or legal advice is sought in both the UK and your client’s new country of residence.

The information contained in this article has not been approved for use with customers and is based on Aviva's interpretation of current law and legislation and our understanding of HM Revenue & Customs (HMRC) practice as at 6 April 2021    . It is provided for general information purposes only and should not be relied upon in place of legal or other professional advice. Both the law and HMRC practice will change from time to time and our interpretation may be subject to challenge by the HMRC or other regulatory body. Aviva cannot act as legal advisor for you or your clients. You should always seek appropriate legal or other professional advice.