Understanding QROPS and transfers from UK pensions
The scheme administrator must tell the member if any tax is due and the percentage of standard lifetime allowance used up by the BCE8.
If the transfer is subject to the overseas transfer charge (see below) then the amount to be deducted for the payment of the overseas transfer charge does not reduce the amount to be crystallised through BCE8, although it will reduce the amount actually received by the QROPS.
The overseas transfer charge
Following another update to the QROPS rules, all transfer requests made on or after March 9 2017 must be assessed to determine if they are subject to the overseas transfer charge.
The five conditions used to make this assessment are below – as long as one of these conditions is met, the overseas transfer charge does not apply:
- The member is resident in the same country in which the QROPS receiving the transfer is established.
- The member is resident in a country within the European Economic Area (EEA) and the QROPS is established in a country within the EEA.
- The QROPS is set up by an international organisation to provide benefits in respect of past service as an employee and the member is an employee of that organisation.
- The QROPS is an overseas public service pension scheme and the member is an employee of an employer who participates in that scheme.
- The QROPS is an occupational scheme and the member is an employee of a sponsoring employer of the scheme.
In broad terms this means that where the individual is transferring their pension to a country that they are not resident in, the overseas transfer charge will apply, unless it is their employer’s scheme or both the pension and the member are in an EEA country.
Gibraltar (as part of the UK) and Malta are both EEA countries; however, other previously popular QROPS destinations such as Guernsey, Jersey and Isle of Man are not.
If applicable, the charge is 25 per cent of the value transferred. The individual and transferring scheme administrator are jointly and severally liable for this charge, which must be declared on the 'accounting for tax' return submitted by the UK pension scheme.
The charge will typically be made by the transferring scheme before completion of the transfer.
Payments made from the receiving QROPS
HMRC may request detailed information from the receiving QROPS provider about any transfer. The QROPS provider must provide this information within 60 days of the request.
The QROPS must also report lump sum and some pension payments to HMRC within 90 days of the payments being made. This requirement applies for 10 years following the date of the transfer, regardless of where the individual is resident.
Any income payments from a QROPS will be subject to UK tax if the individual is a UK resident when they receive the payment.