In the Spring Budget of 2017 new legislation was introduced to effectively lower the appeal of transferring a UK sited pension scheme into a QROPS. A brief recap of the key point of that legislation is that a transfer to a QROPS would incur a 25% charge unless any of the following criteria were met:-
1. Both the member and the QROPS are in the same country after the transfer
2. The QROPS is based in the EEA (an EU Member State, Norway, Iceland or Liechtenstein) and the member is resident in another EEA country after the transfer (Gibraltar and Malta are both in the EEA)
3. The QROPS is an occupational pension scheme sponsored by the member’s employer
4. The QROPS is an overseas public service pension scheme and the member is employed by one of the employers participating in the scheme
5. The QROPS is a pension scheme established by an international organisation to provide benefits in respect of past service and the member is employed by that international organisation.
With specific focus on expats based in Spain, they are for the moment unaffected by the above legislation and can still transfer their UK sited pensions to a QROPS as long as the chosen location of the QROPS is within the EEA. It does however indicate that the UK Governments feelings towards pensions being transferred away from their taxable reach are not positive in the least. Another example to emphasise this fact can be seen in the Government’s decision to block any transfers from civil service pension schemes (police, fire service, military, NHS etc) which took effect at the start of the UK tax year in 2015. As the Government seems to be taking a negative position against the facility for members of UK sited pension schemes to transfer their pension pots away from the UK (and consequently away from the reach of HMRC) it is only pertinent to assume that the privilege could well be removed post Brexit.
As I mentioned in a previous blog for the Citizens Advice Bureau Spain and one final point to consider is that the introduction of the QROPS legislation came about as a consequence of the obligation placed on the UK to comply with EU Directives – specifically in this case the ‘free movement of capital’. Before A-Day (April the 6th of 2006) if you had built up a personal or occupational pension in the UK and then moved away you could only transfer your pension to the same country that you moved to. Since the introduction of pension simplification (as the legislation is known) it is now possible to transfer to a wide number of different jurisdictions in the aim of accessing the most tax friendly and cost efficient climate to suite your individual circumstances.
Once the UK separate from the EU they will no long be obliged to comply with EU Directives. With that being the case and when considering the position HMRC has been increasingly taking in opposition to pension transfers to QROPS it is more than reasonable to assume that changes to that privilege will be implemented. Given that HMRC has already blocked transfers from civil service schemes it is quite likely that at some stage in the future we will see the same blanket restrictions come into effect across most of if not all other UK personal and occupational pension schemes.
The decision to transfer your UK pension is not one that can be made without a full financial review which takes an analytical look at both the pros and cons of leaving the pension where it is in contrast to moving it to another jurisdiction. For many people the right decision is often to leave the pension in the UK and retain the benefits offered by the existing pension scheme. Alternatively there are also many people whom could heavily benefit by transferring to a QROPS for many different reasons. It could also be very detrimental to leave a pension in the UK in certain circumstances. As I have outlined in previous articles, the vast majority of defined benefit (final salary) schemes are massively underfunded with many collapsing and being absorbed into the pension protection fund.
If you have a UK personal or occupational pension which you are yet to review then please contact me so that we can conduct a free no obligation review whilst the opportunity is still there.
Chris Pickering – International Financial Adviser
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