“Qrops were originally designed to make it easier for people leaving the UK to retire to another country and take their pension with them. However, the structure has increasingly been manipulated by those looking to artificially cut their tax bills,” Selby said.
Second class option
“Without looking at the finer details that will no doubt become more apparent in the coming days, it is clear that Qrops will no longer be a viable option for many outside of the EU – with a few exceptions,” said James Caldwell, chief executive of Aisa Group.
“If you consider previous rule changes and this new announcement, Qrops are now very much a second class option compared to UK pensions.”
Caldwell said that anyone outside of the EU in particular “should only take advice from UK regulated IFAs that work with a local adviser in the country of residence of the client and now the Qrops”.
Not all schemes included
Exceptions to the charge will apply to allow transfers to be made tax-free where people have a genuine need to transfer their pension, including when the individual and the pension are both located within the European Economic Area.
White said: “The change is in line with the way pension schemes are taxed in the US. The reason that transfers to EEA schemes has been left out at the moment is that HMRC can’t tax these transfers under EU freedom of movement of capital rules.
“The fact that EEA is excluded does mean that transfers to Malta Qrops, when the member lives in the EEA should not be effected.”
Other exceptions include:
- both the individual and the Qrops are in the same country after the transfer;
- the Qrops is an occupational pension scheme sponsored by the individual’s employer;
- the Qrops is an overseas public service pension scheme as defined at regulation 3(1B) of S.I. 2006/206 and the individual is employed by one of the employer’s participating in the scheme; and,
- the Qrops is a pension scheme established by an international organisation as defined at regulation 2(4) of S.I. 2006/206 to provide benefits in respect of past service and the individual is employed by that international organisation.
According to an HM Revenue & Customs (HMRC) paper, the 25% charge ensures that transfers to Qrops will be taxable unless they fall under the exceptions outlined above.
The tax charge will be deducted before the scheme administrator or scheme manager makes the transfer.
Widens taxing provisions
HMRC also said the change widens the scope of UK taxing provisions so that, following a transfer to a Qrops on or after 6 April 2017, they apply to payments out of those transferred funds in the five tax years following the transfer.
This is regardless of whether or not the individual is resident in the UK.
