Budget 2017: new tax on transferring pension overseas
Those retiring abroad might be hit by a new transfer charge on moving their pension to a ‘qualifying recognised overseas pension scheme’ (QROPS).
For some individuals who request an overseas pension transfer on or after 9 March 2017, the government will introduce a 25% charge on transfers to QROPS. This charge is targeted at those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction.
Exceptions will apply to the charge allowing transfers to be made tax-free where people have a genuine need to transfer their pension, including when the individual and the pension are both located within the European Economic Area.
The government says there are generally between 10,000 and 20,000 transfers to QROPS each year. It is expected that only a minority of these transfers will be subject to this 25% tax charge policy.
Gary Smith, financial planner at Tilney, says: "This would be an issue for ex-pats who say retire to Spain but transfer into a QROPS based in Guernsey, as this would incur the 25% tax charge."
Nathan Long, senior pension analyst at Hargreaves Lansdown says: "The 25% charge will crack down on those looking to exploit any loop holes in the tax system but should not impede anyone with genuine retirement planning aspirations. Those retiring abroad still have potential to transfer to an appropriate scheme if it meets certain criteria.
"Even if they can’t, they have the ability to take their pension entirely in cash once they are over 55, which should ensure pension savings can be accessed easily irrespective of where they retire."