UK budget: Overseas transfer charge

On the 9 March 2017, the UK Budget introduced with immediate effect an “Overseas Transfer Charge” (OTC) which is a 25% tax charge on transfers to QROPS from UK registered pension schemes unless:

  1. The member is tax-resident in the same jurisdiction as the receiving QROPS. So a transfer from a UK registered scheme to a New Zealand QROPS for a tax-resident of New Zealand is not affected.
  2. The transfer is to a QROPS located in the European Economic Area (EEA – see note at the end) and the member is also tax-resident in an EEA member state.

 
So if you live outside of the EEA and were thinking of transferring your pension to somewhere other than where you live then you need to review the transfer immediately.
 
So who is not effected:

  1. People that have transferred their pensions to QROPS prior 9 March 2017 can onward transfer these pensions to another QROPS without a problem
  2. People who are transferring to a country in which they already live

 
 

Some examples of how people might be effected

Steve lives in New Zealand and was thinking about transferring to Malta
If Steve goes ahead and makes a transfer to Malta while he is living in New Zealand he will have a 25% tax charge on the transfer as it leaves the UK. Therefore, only 75% of the original value of the fund will arrive in Malta. Furthermore, if Steve continues to live, work and the ultimately retire in New Zealand he will be in exactly the same tax position in New Zealand he would have been in if he had left his pension in the UK.
 
Joanne lives in Australia and was thinking about transferring her Gibraltar QROPS fund to New Zealand
Because Joanne transferred her pension to Gibraltar before 9 March 2017 she is allowed to transfer it out of Malta and to New Zealand without incurring a 25% overseas transfer charge. What’s more she will be able to access the pension in full from New Zealand at the age of 55 years old, which she would not be able to do had she left it in Gibraltar. What’s more the payment to her in Australia from the New Zealand would likely be tax free for Joanne.
 
Graham lives in Australia and was thinking about transferring his UK pension fund to New Zealand
Graham already has an Australian superannuation scheme and his large UK pension scheme is leaving him a headache with non-concessional caps tax in Australia. Graham can transfer his UK pension to New Zealand but will pay a 25% tax charge on the transfer, which will be deducted before the pension is transferred to New Zealand. However, the pension transfer will not effect his Australian pension limits or non-concessional caps and therefore he will have no tax to pay in Australia. Again like Joanne above Graham will be able to access the pension in full from New Zealand at the age of 55 years old and the payment will likely be tax free for Graham in Australia.

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