News » British expats face shock 55pc tax charge on pension transfers
26.05.15
British expats face shock 55pc tax charge on pension transfers
Moving your pension to Australia or New Zealand could trigger a huge tax charge, thanks to the pension freedoms.
British savers who are moving abroad and transferring their pension to Australia or New Zealand could face a shock tax charge of 55pc thanks to the pension freedoms which applied from April 6.
Under the new rules, which allow savers to take their whole pension pot as cash, pension schemes must prohibit members from accessing their savings before the age of 55, unless the member is retiring early due to ill-health.
Schemes in Australia and some in New Zealand, where thousands of British retirees emigrate each year, do not have this restriction written into their rules.
They allow under-55s to take some of their funds early in some circumstances, such is if they are suffering financial hardship.
HM Revenue and Customs has written to all these schemes, known as qualifying recognised overseas pension schemes (QROPS), and warned them that unless they meet the new requirements they will no longer be able to receive UK transfers without tax penalties.
Schemes must tell HMRC whether they meet the requirements by June 17.
Geraint Davies, of advice firm Montfort International, said overseas schemes are highly unlikely to change their rules to accommodate with the UK requirements because it would disadvantage their local members, who make up the vast majority.
He said Australian and New Zealand scemes are instead looking for an exemption, but the process could take some time.
In the meantime if pensions are transferred to a non-qualifying scheme a UK-applied tax of 55pc on the money in the pension could apply.
Mr Davies said: “In the meantime a lot of these schemes could continue accepting UK transfers even if they don’t meet UK requirements, so it’s essential that anyone thinking of transferring their pension makes absolutely sure that the scheme they are using is compliant. Otherwise they could face a 55pc tax charge.”
James McLeod, of international financial advice firm AES International, said anyone who has transferred their pension since April 6 should contact their scheme trustees or their pension provider and ask for the process to be halted.
“It usually takes three or four months to process transfers to a QROPS, so even if you initiated the transfer in early April there is still plenty of time to stop it until we know whether schemes abroad will comply with HMRC’s rules,” he said. “Savers have a responsibility to transfer their money to a qualifying scheme – the onus is on them to do their homework.
“The good news is that people who transferred their pension before April 6 are unlikely to be affected.”
What is a QROPS?
A qualifying recognised overseas pension scheme is authorised to accept transfers from UK pension schemes. There are currently more than 3,500 QROPS schemes around the world.
They are popular with British expats who move abroad permanently and a large number are based in Australia and New Zealand.
Most pensions can be transferred to a QROPS as long as an annuity has not been purchased or, if it’s a final salary scheme, the pension has not commenced. You cannot transfer British Government or State pensions.
QROPS allow savers to make the most of valuable tax reliefs while working and saving into their pension in the United Kingdom, then if they move abroad for at least five years they pay income tax on their pension at the local rate, which is often lower than in the UK.
Expats must be careful when moving their money however. If they transfer their UK pension savings to an unauthorised scheme they will have to pay up to 55pc tax on the transfer.
Source: Telegraph UK, Nicole Blackmore 11 May 2015
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