Keeley Paddon outlines the practicalities advisers need to consider in the wake of the changes to the tax treatment of QROPS transfers outlined in last month's Spring Budget
In last month's Spring Budget, the government announced a number of changes to the tax treatment of transfers of tax-relieved pension savings to qualifying recognised overseas pension schemes (QROPS). Legislation will be introduced in the Finance Bill 2017.
As of 9 March 2017, the day after the Budget, in addition to the checks you make to ensure an overseas transfer is a recognised transfer you now also need to check if the overseas transfer charge applies.
The overseas transfer charge will apply on transfers to QROPS if your scheme member formally requested their transfer on or after 9 March 2017 and none of the following apply:
* They are resident in the country where the QROPS receiving the transfer is based;
* They are resident in a country in the European Economic Area (EEA) and the QROPS they are transferring to is based in another EEA country;
* The QROPS they are transferring to is an occupational pension scheme and they are an employee of a sponsoring employer under the scheme;
* The QROPS they are transferring to is an overseas public service scheme and they are employed by an employer that participates in that scheme; and
* The QROPS they are transferring to is a pension scheme of an international organisation and you are employed by that international organisation.
If your member formally requested the transfer before 9 March 2017 - for example, the member requested in writing for a transfer to be made to a named QROPS but the transfer payment was not made until after 9 March 2017 - the 25% overseas transfers charge will not apply.
Guidance for scheme administrators
To help you decide if the overseas transfer charge applies to a transfer, you must ask your member for information about the transfer and you can use the updated Pension schemes: member information (form APSS263) to do this.
If your member does not give you this information and you make the overseas transfer, you must automatically deduct the 25% overseas transfer charge and pay this to HM Revenue and Customs (HMRC).
The information requirements for UK pension scheme administrators making overseas transfers are also changing. You will have to tell HMRC, the transferring member and the overseas scheme manager details of every transfer and whether the overseas transfer charge applies. If a transfer is not a taxable overseas transfer, you will need to provide the reason why.
I would remind all pension scheme administrators you must provide this information. If you do not provide it within the timescales set out in the pension tax rules, you may be liable to penalties.
The scheme administrator of the registered pension scheme or the scheme manager of the QROPS making the transfer is jointly and severally liable to the overseas transfer charge and they must deduct and pay this to HMRC.
If a transfer is taxable, providers will also need to report this on the Accounting for Tax Return (AFT). For taxable overseas transfers made between 9 March 2017 and 30 June 2017, you will need to report these and pay the tax on the AFT for the quarter ending 30 September 2017.
A change in member's circumstances within five years may result in a change to the tax treatment of the original transfer and could lead to a repayment being due. You can find more information on repayments at Pension schemes: information requirements.
In addition, as a result of the changes announced in the Budget, an overseas scheme cannot be a QROPS unless the scheme manager has given HMRC an undertaking they will operate the new overseas transfer charge and pay this to HMRC when due.
For the purposes of these new undertakings only, HMRC will deem existing QROPS to continue to meet the ‘qualifying' requirement to be a QROPS until 13 April 2017. If by 13 April 2017 HMRC has not received the new undertaking, the overseas scheme will automatically cease to be a QROPS.
Keeley Paddon is head of pensions technical at The SimplyBiz Group
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