25% Tax Charge on QROPS Transfers – Spring Budget 2017
UK Chancellor Phillip Hammond has announced a 25% charge on transfers to QROPS in the Spring Budget 2017 today, "targeted at those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction".
The budget states that "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 change will apply to transfers to QROPS requested on or after 9 March 2017, so we have asked the providers that we work with to ensure that discharge forms on any pending cases are issued to the UK pension scheme by close of play today.
The QROPS Bureau will review all recently issued suitability reports, to identify whether the changes have any impact upon the planning which has been proposed to advisers.
If you would like us to review a particular enquiry in the light of these changes, please let us know.
The QROPS Bureau did expect that this might be a possible change which HMRC would make, post Brexit. The change is in line with the way pension schemes are taxed in the US. The reason that transfers to EEA schemes has been left out at the moment is that HMRC can't tax these transfers under EU freedom of movement of capital rules.
In addition to the above, payments out of funds transferred to a QROPS on or after 6 April 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident.
The changes have been announced to reduce tax avoidance. HMRC wish to ensure that income tax is paid somewhere on income arising from UK tax relieved pension transfers , even if it is not the UK.
As well as the freedom of movement of capital constraint on HMRC taxing transfers to EEA countries there is a further logic.
Most EEA countries have income tax levels which are similar to the UK. Since the introduction of flexible drawdown, HMRC are concerned that QROPS to making gross income payments to individuals who are resident in countries with a low or nil income tax regime, resulting in the pension being withdrawn with no or very little tax being paid.