The Chancellor of the Exchequer used his Spring Budget to announce that, with effect from 9th March 2017, pension transfers by UK residents to QROPS (Qualifying Recognised Overseas Pension Schemes) not in the European Economic Area will be liable for a 25% tax penalty. Philip Hammond said that this policy was being introduced in the interests of “fairness in the tax system.”
Why has the Chancellor introduced this policy?
This new legislation is aimed primarily at individuals who retire in one country, but “park” their pension in a more tax-friendly location, such as an offshore tax haven. The UK Treasury commented, “This charge is targeted at those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction.”
“There are generally between 10,000 and 20,000 transfers to QROPS each year,” said HMRC. “It is expected that only a minority of these transfers will be subject to this policy.”
Even so, the UK Exchequer estimates it will be £315 million better off by 2021/22 as a result of this new legislation.
You can read HMRC’s policy paper: Qualifying recognised overseas pension schemes: charge on transfers.
How might this affect my UK pension transfer to a NZ QROPS?
The potentially good news is that there are some exemptions to this 25% tax charge. The policy paper states:
This measure ensures that transfers to QROPS requested on or after 9 March 2017 will be taxable unless, from the point of transfer, both the individual and the pension savings are in the same country, both are within the European Economic Area (EEA) or the QROPS is provided by the individual’s employer.
Please note the text in blue italics.
In other words, as would be the case for GBPensions’ clients, if you are a NZ tax resident and you transfer your UK pension to a NZ QROPS, you are exempt from this tax charge.
There could however be an exception, as funds transferred to a QROPS are now liable to UK tax laws for five years after the date of the transfer. Therefore, if, for example, you moved back to the UK from NZ within that five year period, you could then be liable for the 25% tax charge, unless you transferred your pension back to the UK prior to your return.
How might this affect my UK pension transfer to a SIPP?
GBPensions is unusual in New Zealand, in that we also offer our clients the option of moving their UK pension to a Self-Invested Personal Pension (SIPP). Since a SIPP is not a QROPS, SIPP transfers remain unaffected.
What should I do next?
We regularly refer to the “moving goalposts” of pensions legislation, both in the UK and New Zealand. Please don’t make any assumptions about how this latest change could impact your pension transfer. Instead, contact us to have a confidential chat about your options.
Further down the line, if your plans or circumstances change, it’s important to keep GBPensions up to date so that Tony and the team can help you determine whether your chosen course of action is still the most appropriate.