Gerard Associates Ltd
Gerard Associates Ltd
Global Wealth Managers and Independent Financial Advisers
QropsOverseas Pension TransfersQrops ChargesUK PensionsQrops FAQ
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 Overseas Pension Transfers

If an individual member holding a Personal Pension requests a transfer between their UK registered pension scheme and another it will be a recognised transfer so long as certain conditions are met.

If a transfer from one pension scheme to another isn’t a ‘recognised transfer’ some significant tax consequences are incurred which are dealt with below.

So what if someone moves abroad and wants to transfer to an offshore pension scheme?

Her Majesty’s Revenue and Customs (HMRC) starting point is pension funds which have enjoyed UK tax benefits should not be able to transfer to overseas schemes which don’t have the same restrictions.

However, rather than ban overseas transfers altogether or penalise them so much that it has the same result, HMRC will, in some circumstances, treat a transfer to an overseas scheme as a recognised transfer. The scheme manager of the overseas scheme would have to supply certain information to HMRC and the scheme would have to meet certain conditions. If this is done, HMRC will recognise it as a Qualifying Recognised Overseas Pension Scheme (QROPS) and transfers to it from UK schemes will be recognised transfers.

What is a QROPS?
There are various ‘hurdles’ a scheme has to overcome before HMRC will recognise it as a QROPS. A QROPS needs to meet the conditions to be:
• an overseas pension scheme and
• a recognised overseas pension scheme and finally
• a qualifying recognised overseas pension scheme.

A QROPS is therefore the top of the tree in HMRC’s eyes when it comes to foreign pension schemes. However, even if all the requirements are met, HMRC can refuse to recognise an overseas scheme (for instance if it doesn’t provide all the information it said it would).

If it is not, the transfer will be an unauthorised payment resulting in tax penalties.

An overseas pension scheme
• can’t be a registered pension scheme. Equally well, a registered pension scheme can’t be an overseas pension scheme which seems fair and
• has to be established outside the UK (‘established’ usually means where its registered office and main administration is) and
• must be regulated as a pension scheme in the country or territory in which it’s established. If there is no body to regulate it, the scheme must be either:
o established in the European Union or in Norway, Iceland or Liechtenstein or
o the scheme’s rules must provide that at least 70% of the UK tax relieved funds will be used to provide a pension for life from the member’s normal minimum pension age and
• must be ‘recognised for tax purposes’ in the country or territory in which it’s established. This means it must be:
o open to all residents and
o established in a country or territory where there is taxation of personal income from which relief is not available in respect of the contributions made to pension schemes or all or most of the benefits are subject to taxation or the scheme itself is subject to taxation on its income and gains and is of a specified kind * and
o approved, recognised or registered by the relevant tax authorities or if there is no system for this, it must be able to pass the ‘70%’ rule above.

* This last way of satisfying the condition was introduced to allow Australian schemes to continue to be able to be recognised as QROPS after changes to the taxation of Australian schemes introduced on 1 July 2007. A complying Australian superannuation plan is currently the only specified kind of scheme.

An international organisation (such as the United Nations or the European Union) can establish a scheme outside the UK. To be regarded as an overseas pension scheme, such a scheme only has to meet the ‘70%’ rule and allow benefits to be paid before the normal minimum pension age only if the member is in ill-health.

A recognised overseas pension scheme
• has to be established in a country which is in the European Union, Norway, Liechtenstein or Iceland, or
• has to be established in a country or territory with which the UK has a Double Taxation Agreement that contains exchange of information and non-discrimination provisions, or
• must provide that
o at least 70% of the funds transferred will be used by the scheme manager to provide the member with an income for life,
o the retirement benefits payable to the member from the transfer funds are payable no earlier than normal retirement date (unless on ill-health grounds), and
o membership of the scheme is open to people resident in the country or territory in which it is established.

A qualifying recognised overseas pension scheme
• has to notify HMRC that it’s a recognised overseas pension scheme and have provided evidence of that if required and
• must promise to tell HMRC if it stops being a recognised overseas pension scheme and
• has to tell HMRC the name of the country or territory it’s established in and
• has to provide any other evidence HMRC need and
• has to promise to give HMRC certain information on making payments in respect of certain scheme members and
• must not have been excluded by HMRC from being a QROPS.
• To notify HMRC, the overseas scheme manager can use form APSS251 which has been designed to help.

Recognised transfers to QROPS
• an important point is that unlike a recognised transfer between two UK registered pension schemes, a transfer from a UK scheme to a QROPS is a benefit crystallisation event. So if the amount of the transfer is over the relevant lifetime allowance, a lifetime allowance charge will be levied. However, because the payment is not to the individual, the rate charged is 25%, not 55%, despite the fact that it involves a lump sum. There will be no effect on the annual allowance as it isn’t a contribution (although all payments made in the pension input period up to the date of transfer will)
• some overseas schemes (for example schemes in the USA) may not accept the transfer value
• the UK scheme administrator must report the transfer to HMRC (they would also have to report a non-recognised transfer)
• the QROPS scheme manager must agree to tell HMRC when they pay benefits from the transferred fund or if they transfer the fund again. Any payment or transfer which wouldn’t have been an authorised payment or recognised transfer from a UK registered pension scheme will suffer the normal tax penalties (see below)
• a transfer to a QROPS is not a chargeable event for inheritance tax (IHT) purposes
• the QROPS itself is not subject to IHT and therefore doesn't suffer periodic or exit charges
• as a transfer to a recognised overseas pension scheme is a 'permitted transfer', enhanced protection will not be lost on such a transfer, including a transfer to a QROPS
• if the transfer contains a Guaranteed Minimum Pension (GMP) or Protected Rights, there are other things the UK scheme has to do before the transfer can go ahead. It has to:
o get written confirmation from the member that he understands that the overseas scheme might not give the same degree of protection
o take reasonable steps to check that, where the QROPS is an occupational scheme, the member is actually employed by that employer
o take reasonable steps to check that the member has received a statement of what benefits the transfer value will provide in the QROPS.

Non-recognised transfers
• A non-recognised transfer may result in the following tax penalties:
• an unauthorised member payment charge of 40% of the transfer value
• if all unauthorised payments in a 12 month period are more than 25% of the fund value, an unauthorised payments surcharge of 15% of the transfer value will be payable by the individual
• the registered pension scheme will have to pay a scheme sanction charge of 40% of the transfer value. If the scheme administrator has deducted the member's tax charge from the transfer payment and paid the tax charge to HMRC on the member's behalf, the scheme administrator may reduce the amount of the scheme sanction charge by the lesser of 25% and the amount of member's tax charge deducted as a proportion of the transfer payment
• if the amount of non-recognised transfers exceed 40% of the scheme’s assets, it could be de-registered with a de-registration charge of 40% of the scheme’s assets.

Transfers from overseas schemes
In this case, a transfer is coming from a pension scheme which is not regulated and taxed by HMRC to one that is. Almost all pension transfers from overseas pension schemes to UK registered pension schemes are allowable and treated in a similar way to recognised transfers. However a registered pension scheme isn’t obliged to accept the transfer.

Overseas transfers into registered pension schemes aren’t recognised transfers. However they aren’t unauthorised payments either as unauthorised payments can only come from UK registered pension schemes. The transfer doesn’t count as a contribution and therefore doesn’t get tax relief but also doesn’t count against the annual allowance, nor is it a benefit crystallisation event (BCE) so it doesn’t trigger off a test against the lifetime allowance at time of transfer. However it will count against the lifetime allowance when a BCE does occur, unless it comes from a recognised overseas pension scheme.

If the transfer is from a recognised overseas pension scheme, the individual’s lifetime allowance can be enhanced by the same percentage as the transfer value bears to the standard lifetime allowance at time of transfer. So if John has a transfer of £160,000 from a recognised overseas pension scheme during 2007/08, his personal lifetime allowance will be 10% higher than the standard lifetime allowance (£160,000/£1,600,000). This recognises the fact that the transferred funds haven’t received any tax advantages from HMRC. An individual has up to 5 years from 31 January following the tax year in which the transfer is made to claim this enhancement by registering it with HMRC. So John has until 31 January 2014 to register his claim to an enhancement to his lifetime allowance. It’s important to note that this enhancement is only available if the transfer is from a recognised overseas pension scheme – if it is not a recognised scheme, the enhancement can’t be claimed.

Important Notes:
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.

In addition, the information provided is also based on our current understanding of the relevant Finance Acts.
Pension investment values and income arising from them can fall as well as rise.

This information does not constitute advice and we cannot accept responsibility for its interpretation or any future changes to law. Any advice and recommendations will be given in writing.

Life Insurance