Summary and implications
Yesterday's Budget included an announcement of an immediate change to the rules for transfers to Qualifying Recognised Overseas Pension Schemes (QROPS). Transfers from a UK registered pension scheme will now attract a 25% tax charge. The new tax charge will not apply where:
If one of the residence conditions is met at the time of transfer but due to a change of circumstances is no longer met during the next five tax years, then the tax charge will arise at that point. Members are required to inform scheme administrators if they change their residence during that period. There are also provisions to tax onward transfers made from the QROPS in the subsequent five tax years.
The member and scheme administrator (usually the trustees) will be jointly and severally liable for the tax charge so it should generally be calculated and deducted before the transfer payment is made.
In another tightening up on overseas transfers, managers of existing QROPS have until 13 April 2017 to resubmit their undertakings to HMRC. If they fail to do this then the scheme will cease to be a QROPS and any transfer payment received by it on or after 14 April 2017 will be an unauthorised payment.
Scheme administrators will need to adapt their due diligence procedures when faced with a transfer request to a QROPS. Key to this will be taking due care in establishing that any claim from a member that he falls within one of the exemptions is genuine. If an incorrect transfer is made, scheme administrators may avoid a scheme sanction charge if they can show they took "reasonable care" in establishing the correct position before making a transfer. HMRC guidance includes suggestions such as checking the location of the relevant bank account and obtaining information on scheme rules and membership and its regulatory and tax status. HMRC’s list of recognised overseas pension schemes should also be checked no earlier than 24 hours before the transfer is made.
In other budget news: