In the Budget earlier this month, the Chancellor Philip Hammond announced a 25% charge for people moving their pension abroad. If you’re planning to spend your retirement somewhere warmer and sunnier than the UK then the news may have worried you somewhat – will it end up stalling your dreams of life after work spent overseas?
The charge will affect qualifying recognised overseas pension schemes (QROPS) and has been introduced in an effort to prevent people from moving their pension savings overseas in order to avoid paying UK tax. As such, there are a number of exemptions to the new rules, which should mean that anyone legitimately planning to move abroad when they retire will be able to do so without parting with a hefty sum from their retirement pot.
There are three situations where an individual will be exempt from paying the new 25% charge: if both the QROPS and the individual are in the same country following the transfer; if the QROPS is in a country within the European Economic Area (EEA); or if the QROPS is sponsored by an employer and constitutes an occupational pension.
HMRC has stated that “only a minority” of QROPS transfers will be subject to the new policy which further backs up the idea that the 25% charge has been introduced to deter people from abusing the QROPS system to avoid paying UK tax. As such, anyone with plans to retire to a warmer climate shouldn’t worry about losing a quarter of their pension to do so.
It’s also worth noting a further change to the QROPS system, however. HMRC has stated that “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”. It’s definitely worth seeking professional financial advice regarding QROPS if the changes to the rules surrounding overseas pensions are likely to affect you in any way, so please get in touch with us directly to ask any questions you have.