Transfers to overseas pension schemes are not recognised transfers unless the transfer is to a Qualifying Recognised Overseas Pension Scheme (QROPS).
A transfer to an overseas pension scheme that isn’t a QROPS is therefore an unauthorised payment and taxed accordingly.
However even if the transfer to the QROPS is a recognised transfer there might still be a tax charge on the transfer.
The March 2017 Budget introduced a 25% tax charge on transfers to QROPS unless:
- the member is resident in the same country in which the QROPS is established.
- the member is resident in a country within the European Economic Area (EEA) and the QROPS is established in a country within the EEA.
- the QROPS is set up by an international organisation for the purpose of providing benefits for an employee of the organisation and the member is an employee of that international organisation.
- the QROPS is an overseas public service pension scheme and the member is an employee of an employer that participates in the scheme.
- the QROPS is an occupational pension scheme and the member is an employee of a sponsoring employee under the scheme.
The transfer charge can only apply to transfers where the request was made on or after 9 March 2017. This doesn’t include casual enquiries; it would have to be an instruction from the member to the UK scheme administrator to transfer £x or x% of the UK pension fund to a named overseas pension scheme.
Within 30 days of the request the UK scheme administrator has to collect information from the member to allow the transfer to proceed. This can be done using form APSS263. The member then has 60 days to provide this information. If they don’t, the UK scheme administrator must deduct the overseas transfer charge if the transfer proceeds.
The charge also applies if someone is exempt at the outset, but their circumstances change during the ‘relevant period’ so that none of the exceptions applies. The ‘relevant period’ is from the date of the transfer to the next 5 April plus the next five tax years. The reverse is also true – the charge is refunded if it’s applied at the outset, but at least one of the exceptions becomes applicable during the relevant period.
The scheme and member have joint and several liability for the charge. This means the scheme should deduct and pay the charge to HMRC. But if it doesn’t, the member will end up paying the charge via self-assessment.