Transitional provisions have been introduced to reduce the amount of overseas transfer allowance available where the member had used up some of their LTA previously. This is separate from the transitional calculations for the lump sum allowance and LSDBA, but it works in a similar way.
The calculation is seemingly straightforward. The overseas transfer allowance is reduced by the LTA previously used amount. If the member had used up all of their LTA, their overseas transfer allowance is nil.
This creates a couple of problems, however. Firstly, any funds that were crystallised between April 6 2006 and April 5 2024 are effectively double counted against the overseas transfer allowance; once, when reducing the available overseas transfer allowance using the transitional calculation, and again when the transfer takes place if it includes those crystallised funds. This can leave members at a disadvantage.
Secondly, any members who have pension rights that came into payment before April 6 2006 but did not have a benefit crystallisation event by April 5 2024 will never have had their benefits tested against the LTA. These funds will therefore inadvertently bypass the transitional calculation altogether, leaving the member in a better position than intended.
Fortunately, HMRC has confirmed amending regulations will be introduced to correct both of these issues. In their pension schemes newsletter 158 in April, HMRC recommended that members may wish to delay transferring their pension rights to a Qrops until these issues are resolved.
HMRC recently held a consultation to consider a draft version of the necessary amendments and advised that the government plans to introduce them as soon as possible after the summer recess. Until then, however, anyone who would be impacted by these issues is stuck in limbo.
Overseas transfer charge
All transfers to Qrops requested on or after March 9 2017 are assessed to see if they may be subject to an overseas transfer charge. The charge was intended to reduce the number of transfers and keep more pension wealth in the UK.
This charge still exists, but there are now two ways it can be triggered.
The first test is the same as it was under the old rules. There is a set of five conditions that the transfer is checked against, and if at least one of them is met, no charge is due. The five conditions are:
- The member is resident in the same country in which the Qrops receiving the transfer is established.
- The member is resident in the UK, Gibraltar or a country within the European Economic Area (EEA) and the Qrops is established in Gibraltar or a country within the EEA*.
- The Qrops is set up by an international organisation to provide benefits in respect of past service as an employee and the member is an employee of that organisation.
- The Qrops is an overseas public service pension scheme and the member is an employee of an employer who participates in that scheme.
- The Qrops is an occupational scheme and the member is an employee of a sponsoring employer of the scheme.
Where none of the conditions are met there is a 25 per cent tax charge on the entire value of the transfer.
*Prior to the UK’s exit from the EU, this condition was that the member must be resident in, and the QROPS established in, a country within the EEA.
Example
Peter is self-employed and currently lives in the UK. He wants to move to Australia in the future, and as part of his plans he is considering transferring his self-invested personal pension valued at £150,000 to an Australian Qrops.
