How 2017’s Spring Budget has Affected QROPS
May 16, 2017
Qualifying recognised overseas pension schemes (QROPS) were first introduced by the British government in April 2006 and were designed to offer a number of advantages to UK pension holders who had left Britain or were planning to do so within the following 6 months.
Recognised by HM Revenue and Customs, QROPS came about after the subject of freedom of capital movement was raised by those concerned with EU human rights. Some countries, such as France and the USA, do not recognise QROPS, but there can be numerous benefits in moving your pension to a country that does.
Basing your pension in a well-established QROPS jurisdiction such as New Zealand could save you a large amount of money on tax, compared with leaving your pension pot in the UK, where much higher charges are likely to incur.
Introducing ‘Exit Tax’
In its 2017 Spring Budget, the government introduced tougher guidelines on transferring your pension overseas. Now, Brits who wish to move overseas and take their pension with them may be hit by a new 25% QROPS ‘exit tax’, depending on their circumstances.
According to the government’s website, those who request an overseas pension transfer on or after 9th March 2017 will be required to pay the new tax charge. Among those affected are advisers whose clients wish to make an overseas pension transfer, scheme administrators of registered pension schemes, and QROPS scheme managers, which many are viewing as unfair.
Who Else Will Be Affected by the Changes?
Unless you and your pension savings will both be based in the same country (either within the European Economic Area (EEA) or outside the EEA), or the QROPS is an occupational pension scheme provided by your employer, the QROPS transfer will be taxable.
The 25% charge will be deducted before the transfer is made by your scheme administrator or manager. Anyone who transferred to a QROPS before 9th March will be locked into the old rules. And that’s not all. The government has also stated that if your circumstances change with five tax years of the transfer, it will reconsider the way in which you are taxed.
As of 6th April 2017, UK tax rules now apply to payments from funds that have been transferred tax-free to QROPS either on or after this date. And in the five full tax years following the transfer, UK tax rules will apply to any payments made, regardless of whether you have been a resident in the UK during that time or not.
Are QROPS Still an Attractive Option?
QROPS are still an attractive option and can offer a greater flexibility and freedom than a UK-based pension scheme – just not for everyone. In a nutshell, those who wish to move to popular retirement locations outside Europe, such as South America, the Middle East, or the Caribbean, for example, but want to base their pension in a different country, like Gibraltar or Malta, they will be required to pay the exit charge. This throws a huge spanner in the works for pension scheme administrators, both in the UK and abroad, and, of course, anyone who has spent months meticulously planning their QROPS transfer and migration to separate locations.
UK Government – https://www.gov.uk/government/publications/qualifying-recognised-overseas-pension-schemes-charge-on-transfers/qualifying-recognised-overseas-pension-schemes-charge-on-transfers
Our panel of FCA Approved Pension Experts Will Help You:
- Free Initial Assessment of Your Current Pension Funds
- Find Out Your Projected Retirement Income
- Understand The Most Appropriate Alternative Investments
- Find Out How The Latest Pension Changes Affect You
- Release Cash From Your Pension
- Discover The Benefits of Changing Pension Providers