If you are considering transferring your UK pension funds to a QROPS, you must remember that you may be subject to the Overseas Transfer Charge (OTC) not only at the time of transfer but also, potentially, in the future.
What is the OTC?
The Overseas Transfer Charge came into effect from 9th March 2017 and applies to most QROPS transfers (there are special circumstances where such transfers are exempt, see below).
It is charged at 25% of the transferred value.
The charge is automatically deducted by the QROPS manager from your fund and transferred to HMRC.
The tax is applicable to transfers into a QROPS, whether the source is a registered UK pension scheme, another QROPS or a scheme that once qualified as a QROPS.
It is not applicable to transfers that were requested before 9 March 2017, nor is it applicable to funds derived from UK pension transfers to QROPS before 9 March 2017.
It is also not applicable to transfers to another UK registered pension scheme, e.g. a SIPP (Self Invested Personal Pension).
When is the OTC not payable?
There are a few scenarios where the OTC is not payable. However, for the purpose of this post, the most relevant is when the funds are being transferred to a QROPS that is established in a country within the European Economic Area (EEA) and the member is also a resident in a country within the EEA.
For example if the QROPS is established in Malta and the individual is resident here in Poland, then the OTC would not apply at the time of transfer.
What happens if my circumstances change?
However, if your circumstances change within the first five full tax years (6th April to 5th April) after a QROPS transfer has taken place, then a transfer that was not subject to an OTC at the time of transfer could become fully chargeable.
For example, if within five years you move from Poland to another country that is not in the EEA, then the OTC will then be payable.
Future QROPS Changes
Legislation around QROPS transfers is constantly changing; the Overseas Transfer Charge outlined above was introduced with 24 hours notice.
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