UK Pension Transfers Overseas Are About to Become More Complicated After Brexit

Contributed by QROPS Specialists, 18 December, 2019

Before 2017, if you were moving abroad, most expats looked into the possibility of transferring their pension to a Qualifying Recognised Overseas Pension Scheme (QROPS). However, since then, the UK government have put in a number of changes that has made the move less favourable. We will explore them in this article.

The QROPS rules changed back in April 2017 to include new stipulations to ensure that UK pension pot members were not trying to "game" the system and a number of new rules were put into place which hampered outflows into Qualifying Recognised Overseas Pension Schemes.

With the Conservative Party winning a solid majority and "Brexit" firmly on the cards, it is about to become more complicated for advisers and clients who want to transfer their pensions abroad. Careful advice from experts will need to be taken into consideration.

Most clients may have missed the opportunity to transfer before Brexit as most transfers take 3 months or more. Although, we have known transfers to be completed within six weeks.

First, let's look at some of the most recent changes in the legislation surrounding UK pension transfers abroad.

QROPS Rule Changes 2017

Legislation was introduced in the Finance Bill 2017 so that:

What Does All This Mean?

The upshot of these new regulations mean that you need to transfer your pension to the country you are moving to in retirement, otherwise you would get hit with a 25% Overseas Transfer Charge (OTC).

Before 2017, you could move to a "3rd jurisdiction" such as the Isle of Man, Guernsey, Gibraltar, Malta or New Zealand without any exit penalty. Now, you would be penalized with a 25% OTC if you are not moving to that jurisdiction and remaining resident there for at least five years.

Countries that will avoid the 25% Overseas Transfer Charge:

If you move anywhere else in the world, you are likely to face the 25% Overseas Transfer Charge (OTC)

Brexit and the Effect on QROPS

After Brexit, if you move your pension to a QROPS and you are still resident in the UK, you will be hit with an immediate 25% overseas transfer charge upon transfer. You would then have to claim this back at a later date when you can prove that you are tax resident abroad.

Before Brexit, this wasn't the case. You could transfer a pension abroad, even if you are still resident in the UK without incurring the 25% OTC.

This may be particularly troublesome for those near the 1m GBP "lifetime allowance", who would have to pay the exit tax now if they wanted to transfer their pension pot abroad straight way. Then claim that tax back at a later date. The other option is to wait until you move abroad and stop contributing to your pension pot or keep contributing a pay up to 55% income tax on any lump sums you receive from the pot over 1m GBP.

QROPS in 2019

There are also other rules which are country specific. In Australia, for example, you must be over the age of 55 to transfer a QROPS to Australia.

In many cases, an international SIPP may now be preferable to a QROPS, particularly for small or modest pension pots. It is important to discuss all the options with a financial adviser, in particular, with respect to currency considerations, distribution of the pension pot upon death, discussion of when a client wants to receive their retirement benefits, a client's health and finding the appropriate regulated investments to fit a client's risk profile.

About QROPS Specialists

QROPS Specialists are UK pension transfer specialists. We specialise in giving tailored advice for transferring UK pensions overseas.

Tags: Pensions | Expats | Pensions | pensions |



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