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 per cent 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 (EEA). QROPS provided by the individual's employer are also exempted.
MAJOR SHUTTING DOWN OF THE QROPS MARKET
QROPS were introduced to make it easier for people retiring overseas to take their pension with them, but the system 'has been increasingly manipulated by those looking to artificially cut their tax bills', according to Tom Selby, senior analyst at AJ Bell.
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 per cent tax charge policy.
Andrew Tully, pensions technical director, Retirement Advantage comments: 'This appears to be a significant shutting down of the QROPS market, restricting overseas transfers to situations where people have an overseas employer's scheme or the QROPS is in the EEA.
'The government has been increasingly concerned about the use of these schemes for the past few years and this appears a major move to reduce their use.'