HAMMOND SPRINGS A SURPRISE

HAMMOND SPRINGS A SURPRISE

Following the introduction of significant changes to the Qualifying Recognised Overseas Pension Schemes (QROPS) in the Autumn Budget, many were surprised when Chancellor Philip Hammond also announced a new overseas transfer charge for participants of the regime in the Spring Budget.


The 25% charge applies to all transfers made on or after 9 March 2017 from UK-registered pension schemes to QROPS or transfers from one scheme to another. The transfer payment made to a QROPS is classed as a Benefit Crystallisation Event No 8 (BCE8), which means it is subject to testing against the standard lifetime allowance or the individual’s higher lifetime allowance under certain circumstances. There is a 25% tax charge for the element over the lifetime allowance and a 25% charge on the whole fund going across to the QROPS.


However, there are some exceptions. The charge will not apply if both the individual and pension scheme are in countries within the European Economic Area (EEA); both the individual and pension scheme are in the same country if outside the EEA; or the QROPS is an occupational pension scheme provided by the individual’s employer.


A five-year rule has also been introduced, under which tax charges will be due for up to five years after the date of the transfer if there is any change in circumstances. If an exemption applies within the first five years after the transfer, a refund may be issued.


Paula Steele, managing partner at John Lamb Financial Planning, says: “The introduction of the QROPS transfer charge makes the regime less flexible than it has been in the past and introduces additional administrative hurdles for those wishing to participate in these types of schemes.”


Other pension-related announcements in the Budget included the Chancellor’s confirmation that the Money Purchase Annual Allowance (MPAA) would be reduced from £10,000 to £4,000 following a consultation period. The reduction came into effect on 6 April 2017.