Hammond cracks down on overseas pensions transfers

People seeking to move their pensions out of the UK could face punitive tax charges under rules unveiled in last week’s budget, with both Britons living abroad and foreign nationals based in the UK potentially affected. New rules on such transfers, which will take effect immediately, will mean savers have to pay a tax charge of 25% on their funds before moving the money, unless the transaction involves only European Economic Area (EEA) countries, or the funds are being moved to a country in which the saver now lives.

The rules are focused on qualifying recognised overseas pension schemes (QROPS). These are pension schemes based in around 40 countries that HMRC recognises as operating under similar rules as those that apply in the UK. While transfers to other overseas pension schemes already attract tax charges, it has been possible to move money into a QROPS tax-free.

However, while there are legitimate reasons for such a transaction – a Briton retiring abroad, for example, or a foreign national returning home following a stint working in the UK – QROPS have also been associated with aggressive tax avoidance, pension frauds and scams. On this basis, many have welcomed the chancellor’s crackdown, but there is also concern that some savers will be unfairly caught out.

In particular, the new rules might affect Britons retiring abroad to countries such as the US and Canada, which do not have QROPS set-ups with the UK. People seeking to move pensions there have therefore tended to transfer their money through third-party jurisdictions, such as Malta, Gibraltar and Singapore, where QROPS are available and the local tax rules are benign. Such moves could now fall victim to the new tax charges.

While the Treasury estimates the QROPS measures will raise a relatively modest £65m-£120m a year, the effect could be that savers who don’t meet the tighter criteria laid out by the chancellor will now find it difficult to get their money out of the UK. Some will face the choice of leaving their pension fund in the UK and trying to draw it from overseas when they take their retirement benefits, or being forced to take a sizeable hit on a transfer.

Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.