The Spring Budget has brought changes to ‘Qualifying Overseas Pension Schemes (QROPS) . Which will affect expats who want to transfer their pensions outside the EU, New Zealand and Australia. In a policy expected to net the treasury £65 million in 2017/2018, transfers of pensions will now be subject to a 25% tax.
Subject to a 25% tax
The government says this will create ‘fairness in the tax system’ as these overseas pension transfers already have tax relief in the UK. The measure was brought in to combat those avoiding tax by moving their pension wealth to another jurisdiction.
QROPS were originally brought in to make it easier for people to take their pensions with them. However when they retired to another country, they have been misused by those seeking to artificially lower their tax bills.
Expats moving to Australia and New Zealand escape the tax, and those countries impose zero tax at retirement age. These changes will make moving to Europe and the Antipodes more attractive financially to Brits expats ; although looming Brexit uncertainty will also play a part.
Those who transferred their pensions prior to the 9th of March 2017, when the changes came into effect, are locked into the old rules. Any transfers made after that date will not be able to go ahead unless the new conditions are met. This will come as an unpleasant surprise for individuals and financial advisors who have been planning moves for some time, only to find the rules have changed.
The move, which will bring UK pensions in line with rules surrounding Irish transfers, ensures that QROPS transfers will be taxable unless both the individual and the savings are in the same country. The transfer is within the European Economic Area (EEA) or where the QROPS is provided by their employer.
HMRC have said that there are between 10 and 20,000 QROPS transfers each year but that this change is expected to affect a minority.
Payments from QROPS within 5 years of transfer are also affected. This is in an extension of UK taxing rights which comes into effect on April 6th, 2017.
For excellent financial support on changes to qualifying overseas pension schemes (QROPS), contact us today. We will keep your financial affairs going straight ahead.