More transfers will be hit by the 25 per cent overseas transfer charge (OTC) on transfers from UK registered pensions schemes to qualifying recognised overseas pension scheme (QROPS), Budget papers published today reveal.
The OTC) of was introduced in 2017 on transfers from UK registered pensions schemes to QROPS arrangements but certain transfers were excluded from the charge.
The changes mean the OTC will now apply to transfers requested from 30 October 2024 to a QROPS established in the EEA and Gibraltar where the member is UK resident or resident in a different country within the EEA.
Transfers to qualifying pension schemes in the same overseas country the member is resident in will continue to be excluded from the charge. This will lead to practical difficulties to those who want to retire in the EEA but are unable to transfer their pension to the same country, says Rachel Vahey, head of public policy at AJ Bell.
Vahey says: ” The abolition of the lifetime allowance rules back in April created an interesting situation where pension savers could double dip on their pension allowances by transferring overseas.
“Those with large pension funds could leave £1,073,100 in their UK scheme and transfer any excess to a qualifying overseas pension scheme. They then could take their maximum tax-free lump sum of £268,275 from their UK scheme, as well as any tax-free cash entitlement from their overseas scheme.
“HMRC has now closed this loophole, but in the process may have caused pension currency chaos for overseas retirees.
“It has removed the exclusion that the overseas transfer charge (OTC) will not apply if someone transfers to a QROPS in the EEA or Gibraltar, even though they were not resident in the same country.
“One consequence is those who want to retire overseas, but where there are no QROPS registered in their new country of residence, will be forced to keep their pension scheme in the UK or face a 25 per cent charge on transfer.
“As overseas residents may struggle to hold a UK bank account, and many UK pension schemes won’t pay to non-UK bank accounts, this could leave these overseas retirees in a difficult position. Even where they can hold an account, they still face a harsh choice whether to juggle currency risks when taking pension income or lose 25 per cent of their pension wealth on transfer.”
