The 25% tax charge announced by Mr Hammond in his Spring Budget on the 8th March 2017 and limited time scale of 24 hours for its implementation has created turmoil within the QROPS world.
However, not all is as gloomy as it has been portrayed. Certain exemptions have been introduced that will continue to allow tax free transfers to a QROPS. QROPS could still be the product of choice for many as a pension retirement vehicle.
QROPS were designed to allow those deciding to move overseas to relocate their UK pensions to an overseas scheme. Exceptions will apply to the charge allowing transfers to be made tax-free where people have a genuine need to transfer their pension.
The 25% tax charge will not apply if, from the point of transfer, the following exemptions apply:
- both the individual and the pension scheme are in countries within the European Economic Area (EEA) or
- if outside the EEA, both the individual and the pension scheme are in the same country, or
- the QROPS is an occupational pension scheme provided by the individual’s employer
These new rules could well have an effect on expats choice
of retirement with more pensioners choosing Australia, New Zealand or Europe as their retirement destination.
The only deterrent is that should the client’s circumstances change within 5 full tax years of the original UK pension transfer taking place, the 25% tax charge could then be applied at the time. However, the good news is that this will also work in the client’s favour should those individuals who were originally charged the 25% and circumstances have changed, are within the 5 years of their original pension transfer, making them eligible for a transfer should one of the exemptions allow this.
The UK Government may have been concerned about the loss of tax revenue as a result of UK pensions being transferred abroad and the multitude of pension scams on the international arena. These changes bring QROPS closer to home and evidence of tighter controls will result in a more structured, regulated and safer QROPS environment for our benefits.
This announcement reinforces the fact that good, financial advice is now more crucial than ever and should be.