The change was announced by chancellor Philip Hammond on Wednesday.
Andrew Tully, pensions technical director at Retirement Advantage, said: “This appears to be a significant shutting down of the Qrops market, restricting overseas transfers to situations where people have an overseas employer’s scheme or the Qrops is in the EEA.
“The government has been increasingly concerned about the use of these schemes for the past few years and this appears a major move to reduce their use.”
The change had been anticipated by some in the industry but not quite so soon.
David White, partner at The Qrops Bureau, said: “We expected this might be a possible change which HM Revenue & Customs would make post Brexit, but we are surprised that it has been made sooner.”
Tax change
The 25% charge will affect those requesting an overseas pension transfer on or after 9 March 2017.
It is targeted at individuals seeking to reduce their tax payable by moving their pension wealth to another jurisdiction.
In his speech in parliament, Hammond said that his Budget would “tackle abuse of foreign pension schemes”.
There are generally between 10,000 and 20,000 transfers to Qrops each year, HMRC said. It is expected that only a minority of these transfers will be subject to this policy.
The government expects to net between £60m ($73.3m, €69.3m) and £65m each year during the five years to 2022.
Significantly affect transfer options
John Westwood, group managing director of Blacktower Financial Management, echoed the Tully’s sentiments, saying: “At face value, this could significantly affect clients pension transfer options, so further clarity is urgently required.”
Westwood said that Blacktower is currently in discussions about the change and “eagerly awaits commentary from the Qrops industry”.
Stewart Davies, group chief executive of Momentum Pensions, said the company is “extremely concerned” about the announcement, which is “in all but name, a tax on geographically mobile people who are assiduously planning for their future and providing for their retirement.
“The fact it will come into play so quickly is concerning, as this will leave many advisers unprepared and uncertain about what to advise, which is as far from the ideal as you can get in a pensions sector which should be encouraging transparency and clarity in processes.”
Severe deterrent
Tom Selby, senior analyst at AJ Bell, believes the 25% levy will act as a “severe deterrent to abuse the system”.
