Many expats feel that the Overseas Transfer Charge (OTC) unfairly discriminates against them because of where they live. As a result, some expats have launched a petition to scrap the OTC on transfers from UK pensions to QROPS schemes. While the “Scrap the 25% overseas transfer charge expats pay on QROPS pensions” petition is likely to gain a lot of support, will it gain enough support to force government action, and is the transfer charge the only thing people should think about when considering a QROPS?
QROPS and the “transfer tax”
Since March 2017, transferring a pension from the UK to a Qualifying Recognised Overseas Pension Scheme (QROPS) or from a QROPS to a QROPS could be subject to an Overseas Transfer Charge (OTC), otherwise known as a “transfer tax”, in certain circumstances
Where you live can cost you dearly
The charge, which amounts to 25% of the transfer value of the funds, is not applicable in certain situations where the QROPS member is based in the same country as their QROPS funds or if the member is resident in a country within the European Economic Area (EEA) and the QROPS is established in a country within the EEA.
Many expats living in countries that are not exempt from the charge, feel as though they are being unfairly treated. Accordingly, one expat has launched a petition called Scrap the 25% overseas transfer charge expats pay on QROPS pensions, which could force the government into discussion in a Parliamentary debate.
“Scrap” the OTC?
William Wilson, who has launched the petition against the current transfer tax rules, is arguing that the OTC discriminates against expats living in countries outside the European Economic Area (EEA), by charging them a 25% exit tax on moving their pension fund from the UK to an overseas QROPS.
Whether or not the OTC is applied or not, depends on where the person resides in combination with the country where the QROPS is based. Wilson points out that this is unreasonable because it appears to punish some potential QROPS members for financial planning while allowing savers with other pensions, such as Self-Invested Personal Pensions (SIPPs), to transfer funds without being charged.
Petition deadline in July
All government petitions have six months, from when they are launched, to attract 10,000 signatures to force a response from the government or 100,000 signatures to trigger a debate in Parliament. The deadline for the Overseas Transfer Charge petition is 19 July 2018. At the time of writing, the petition has 352 signatures, but it is still early days.
Nothing to lose but a long way to go
HMRC’s own figures report that the average QROPS transfer since April 2006 has been £93,087. Based on that figure, the average Overseas Transfer Charge is approximately £23,272. For those who must pay the OTC, some say unfairly, they have nothing to lose in signing the petition calling for the charge to be scrapped.
Whilst the number of signatures could rise dramatically as people become aware of the petition’s existence. As Wilson points out, “expats are scattered worldwide, and someone needed to pull them together, so the government is aware of their feelings.” His petition certainly has the potential to do that however, just how many people are likely to be affected by the OTC?
Government figures also report that £9.83 billion, has been moved from UK pensions to QROPS since the legislation came into effect from 6th April 2006. However, this figure relates to transfers from only 105,000 retirement savers. That’s an average 8,750 transfers per year. With these statistics in mind, it is difficult to imagine how the petition will attract 100,000 signatures or even 10,000 of them.
Emigrating to Australia or New Zealand?
If you already live in, or are planning to emigrate to Australia or New Zealand, you may not need to worry about the outcome of the petition as you may be exempt from the charge anyway – should you remain in the same country as your QROPS funds. If you are considering a pension transfer from the UK to a QROPS or from a QROPS to a QROPS, we recommend that you always seek advice from expert consultants such as bdhSterling.
Is your QROPS a QROPS?
If a 25% transfer tax sounds unattractive, imagine having to pay 40% or more. That’s exactly what could happen if the scheme you transfer to is not recognised. The UK government publishes a regularly updated list of Recognised Overseas Pension Schemes (ROPS). Even though this list is updated twice monthly, it can only be viewed as an indication, not a guarantee, that the schemes included are ROPS. It is your responsibility to find out if you must pay tax on any transfer of pension savings. Note that the list may not be comprehensive because some QROPS may elect not be placed on HMRC’s published list.
bdhSterling-the last word in overseas pensions
The decision to transfer to a QROPS is not one to be taken lightly. Whilst this article has focused mainly on the OTC and the movement to have it scrapped, there are many other areas that need to be considered in weighing up how to transfer to a QROPS and whether it is right for you.
To discuss your pension arrangements, get in touch with an expert at bdhSterling today.