Transfer of rights in a UK pension scheme overseas

By Tolley
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The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Transfer of rights in a UK pension scheme overseas
  • Introduction
  • Transferring UK pension rights overseas ― pre 6 April 2006
  • What makes an overseas pension scheme an ROPS?
  • The benefits exemption test
  • The 2015 changes
  • Transfers to QROPS and between QROPS on or after 9 March 2017

Introduction

A pension transfer is the movement of an individual’s accrued pension rights from one pension scheme to another. UK pensions tax legislation specifies which transfers may be made without adverse tax consequences.

Such transfers are known as ‘recognised transfers’ and are a type of authorised member payment. The term ‘authorised member payment’ means that this is a type of transaction that can be made without any tax implications on the member. Such transfers are reported to HMRC but there are no taxation consequences.

To constitute authorised member payments, transfers must be made to either a UK registered pension scheme or to an overseas pension scheme which is recognised by HMRC as a Qualifying Recognised Overseas Pension Scheme (QROPS). A QROPS is a Recognised Overseas Pension Scheme (ROPS) which has given certain undertakings to HMRC relating to the reporting of payments. So the relevant legislation which sets out the necessary conditions (see SI 2006/206) refers to ROPS rather than QROPS. This guidance note uses the term QROPS when referring to an ROPS where it is presumed that the scheme has given the relevant undertakings to be regarded as a QROPS. The position has changed however in relation to transfers to QROPS and between QROPS from 9 March 2017 with the introduction of the overseas transfer charge (see below).

A transfer from a registered pension scheme to a non-UK pension scheme that is not a QROPS will result in tax charges on the member and on the UK scheme that gave effect to the transfer.

Transferring UK pension rights overseas ― pre 6 April 2006

Until 6 April 2006 overseas transfers from UK pension schemes were relatively unusual. This was because of the restrictions then set out by HMRC in relation to such transfers and, in addition, the requirement for some transfers to overseas pension schemes to

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