Overseas transfers out

The Government has stated that they expect transfers to QROPS to be made only where an individual leaves or intends to leave the UK permanently. The intention is to allow an individual to take their pension savings with them to their new country of residence and for them to continue to save in their new country towards providing an income in their retirement. They expect individuals to be aware that UK tax rules will continue to apply to funds transferred from the UK to a QROPS and that charges could arise relating to a transfer. Broadly, the intention is that any individual who leaves the UK and transfers their pension savings should be in much the same financial position as someone who remains in the UK with their pension savings.

A QROPS is a pension scheme established outside of the UK that is similar to a UK scheme. Overseas schemes need to notify HMRC they meet the conditions to be classed as a QROPS and provide required information to evidence this. QROPS status only has significance for UK tax purposes.

In HMRC guidance, a QROPS is defined as an overseas pension scheme that should be able to accept a transfer from a UK registered pension scheme. For a pension scheme to be a QROPS, it must:

• not be a UK registered pension scheme; · be an overseas pension scheme (as defined); · be a recognised overseas pension scheme (ROPS - as defined);
• become a QROPS (as defined).

If an overseas scheme doesn’t provide benefits on retirement, ill-health or death it’s unlikely to be classed as a pension scheme and couldn’t therefore be a QROPS. If a pension scheme doesn’t meet the conditions to be classed as an overseas pension scheme it couldn’t meet the ROPS or QROPS conditions. Similarly, if a pension scheme fails the ROPS conditions it can’t be a QROPS.

The overseas scheme should be treated as a pension scheme for regulatory and tax purposes in the county it is established and should be treated in a way that’s usual for pension schemes in that country – particularly for members of the scheme resident there.

Apart from the need to meet the requirements for an overseas pension scheme and a ROPS, a scheme must meet certain other requirements to be classed as a QROPS. Broadly, the scheme manager must:

• notify HMRC that it is a ROPS by submitting an APSS251 form.
• provide any other evidence required by HMRC to show it is a ROPS (eg, by supplying a copy of the scheme rules).

The scheme manager of an overseas scheme must also ensure that their scheme continues to meet the requirements to be a QROPS. For example, the manager must:

• tell HMRC if the scheme ceases to meet the conditions to be a ROPS.
• comply with prescribed information requirements that fall on the scheme.
• where applicable, operate the overseas transfer charge (OTC) in relation to transfers.

The APSS251 form gives HMRC information confirming that the scheme is a ROPS. In return, HMRC will provide the scheme manager with a unique QROPS reference number. Any errors in the information provided to HMRC could result in the QROPS status of a scheme being withdrawn.

Whether or not a transfer to a QROPS can be made will also depend on the receiving scheme being able to accept a transfer under the legislation of the country in which it is established. For example, HMRC understand that transfers to US ‘qualified’ retirement plans, including individual retirement arrangements (IRAs), cannot be made as such plans are not permitted to accept a transfer of funds from a UK registered pension scheme. In such cases, it may be wise for an individual to check with their US scheme if they can accept a transfer from the UK and whether they have checked with the US Internal Revenue Service that they can do so. The individual should also take advice in the US regarding any taxation implications that the transfer may bring.

QROPS scheme managers are required to re-notify their scheme’s ROPS status at regular intervals. Where the original HMRC ROPS reference letter was dated on or after 6 April 2011, the re-notification needs to be done every five years. Where the original HMRC ROPS reference letter was dated before 6 April 2011, HMRC should have notified the QROPS scheme manager of their re-notification dates. If re-notification is not completed on time, HMRC can suspend a scheme from their published list and can exclude it from being a QROPS.

HMRC publishes a list, that’s updated twice a month, of schemes that have told HMRC they meet the conditions to be a ROPS. Only schemes that have agreed to have their details published appear on the list and it only confirms that a particular overseas scheme has told HMRC that it has met the ROPS requirements. It does not guarantee that a receiving scheme is a ROPS or QROPS - so a UK registered pension scheme that has been asked to make a transfer to a QROPS will need to make their own due diligence checks on the status of the receiving scheme at the time of transfer. One of these checks should include referring to the HMRC list.

The list of countries featured on the list can change as can the number of schemes listed for each country, particularly where rules in the UK or in an overseas country have been amended and there is a knock-on effect on the possibility of making transfers.

It’s worth noting there are many schemes listed from places such as Australia, Gibraltar, Guernsey, Ireland, the Isle of Man, Jersey, Malta, the Netherlands and New Zealand either because they are popular places for people to move to or from with the UK or because a market has developed in a particular place for accepting pension transfers.

The overseas transfer itself will not count towards an individual’s annual allowance but any contributions or increase in benefits during the pension input period up to the date of transfer will.

Not since 6 April 2024.  What is now in place is the overseas transfer allowance (OTA).

Prior to 6 April 2023, a transfer to a QROPS would be tested against the members lifetime allowance as a benefit crystallisation event. Excess funds over the remaining lifetime allowance would be subject to a lifetime allowance charge of 25%. The LTA charge was abolished from 6 April 2023.

From 6 April 2024, transfers to a QROPS will need to be tested against the member's OTA.

Initially, an individual's OTA will be an amount equal to their lump sum and death benefit allowance (LSDBA).   You can read more about the LSDBA in this article.  

For most people, their OTA and LSDBA will initially be £1,073,100, but could be higher if a valid form of fund protection is held.  However, the OTA is a stand-alone allowance and payments which reduce an individual's LSDBA will not reduce their OTA and vice versa.

When the first QROPS transfer takes place, the member's OTA will be reduced by 100% of the value of their LTA used up immediately before 6 April 2024 and by the value of the QROPS transfer.   Subsequent QROPS transfers will reduce the availability of the OTA accordingly.

HMRC have still to confirm how benefits crystallised before 6 April 2024 will be valued.

The Overseas Transfer Charge (OTC) was introduced to address HMRC concerns over:

• people transferring a UK pension arrangement to a QROPS to gain tax advantages when subsequently taking benefits.
• pension scams and pension liberation schemes. Over the years, overseas transfers have been linked to pension scams and there’s also been situations where some overseas schemes were being marketed as way of paying amounts or making investments not allowed under UK rules (for example, offering 100% tax-free lump sums or allowing access to benefits before age 55).

Following the introduction of the OTA there will be two reasons why the 25% OTC will apply:

a)   the transfer does not meet at least one of the exclusion conditions which would exempt it from the charge (see below), or

b)   because the transfer exceeds the individual's remaining OTA.

An OTC payable under a) will take precedence over b), i.e. if the members doesn't qualify for one of the exclusions under a) the OTC will be payable on the full transfer payment. 

If one or more of the exclusions apply, the OTC will be payable on the transfer amount that exceeds the remaining OTA.  This prevents a double charge on the transfer payment.

Example
Alex has an OTA of £1,073,100.  He transfers £1.6 million from a UK-registered SIPP to a QROPS on 1 July 2024.  None of the exclusion conditions apply to him so the 25% OT charge is due on the full £1.6 million.  Although the transfer payment exceeds Alex’s OTA by £526,900, no further OT charge is payable.

Exclusions
The transfer amount will be subject to a 25% tax charge unless any of the following five exclusions is met:

• the individual is resident in the same country where the QROPS is established.
• a transfer is made to a country in the European Economic Area (EEA) or Gibraltar and an individual is resident in the UK, in the same or a different EEA country or in Gibraltar.
• a transfer is made to a QROPS that is an occupational pension scheme provided by an individual’s employer. This is aimed at pension schemes set-up by multi-national employers for their employees working in a branch, or for a subsidiary or other group company in another country.
• a transfer is made to an overseas public service pension scheme and the individual is an employee of an employer using the scheme.
• a transfer is made to a pension scheme offered by an international organisation and the individual is employed by that organization. The term international organisation is defined here.

It’s worth noting that an overseas transfer charge can also apply:

• on onward transfer from a QROPS or former QROPS to another QROPS that includes funds from the original transfer. Unless one of the five exclusions above are met, a charge could apply when the onward transfer is made in the following relevant period:  

1.  where the transfer is made on 6 April, five years from that date 
2.  where the transfer is made on any other date, the period from that date until the end of the tax year plus a further five years from the next 6 April.

• on a change of circumstances after a transfer within the relevant period. For example, a transfer was excluded from the charge based on the member’s country of residence, and the member later moves so that they are no longer resident in the same country where the QROPS is established and therefore they no longer satisfy the exclusion condition.

There can be situations where the overseas transfer charge could be refunded at a later date. For example, if a transfer was made to a QROPS in a different country to where the individual is living but the individual moves within five years to the country the QROPS is based in, then a refund of the tax charge could be requested.  

Therefore, if a change of circumstances means that the OTC would be disapplied, there will have to be a check against the OTA as at the transfer date.  There will be an OTC due if the transfer payment exceeds the individual’s remaining OTA.

Currently, it’s not clear how repayment of the original OTC and payment of the ‘new’ OT charge will work in practice.  Further details are awaited.

Whether an OTC applies or not, is picked up through information provided on relevant forms completed at the time of transfer. Within 30 days of a transfer request, a UK scheme administrator has to collect information from the transferring individual using an APSS263 form (or their own alternative). The form asks an individual to provide information about themselves, details of the receiving QROPS and information relating to the potential liability to the OTC Further details can be found here.

An individual has 60 days from making the transfer request to send this information back to the scheme administrator. If this information is not provided and the transfer still proceeds, the scheme administrator should assume the OTC will apply.

An OTC that is due on a transfer from a UK scheme to a QROPS should be deducted from the member’s funds before the transfer is made. Where an OTC arises on an onward transfer, the QROPS scheme manager will normally deduct this from the amount being transferred.

A summary of the process that should be followed when a transfer is being made from a UK scheme to a QROPS is:

• an individual requests a transfer to an overseas scheme.
• the scheme administrator of the UK scheme outlines the information needed before the transfer can proceed.
• the individual provides the required information to the scheme administrator of the UK scheme. This can be done using a form APSS263 or an equivalent used by the scheme administrator. The individual will also need to complete any forms and provide any information that is required by the two schemes involved with the transfer. This includes information to allow a OTA check to be made in respect of the transfer.
• the scheme administrator of the UK scheme carries out due diligence checks before making the transfer, including employment or residency link to comply with the pension scams and transfer legislation (section below), in addition to checking the published HMRC ROPS list no earlier than 24 hours before a transfer is made.
• the scheme administrator of the UK scheme carries out an OTA test on the funds being transferred.
• the scheme administrator of the UK scheme should use the information provided by the transferring individual to work out if the transfer is liable to the OTC. If a charge is due, this should be deducted from the amount being transferred and paid to HMRC.
• the scheme administrator has reporting requirements to follow once the transfer is made. They need to report the transfer to HMRC using form APSS262 within 60 days of the transfer being made. They also need to provide information to the member and the receiving QROPS as set out in this page of HMRC's Pensions Tax Manual. 

Due to a rise in the number and complexity of pension scams, legislation came into effect on 30 November 2021 that means the trustees or managers of registered pension schemes can prevent or delay a transfer if they see signs of it being a scam. This can affect a member’s statutory right to a transfer.

Where a transfer is to a QROPS, the following information must be requested from the member by the trustees or managers of the transferring scheme:

• evidence (set down in legislation) which establishes overseas residency or an employment link, depending on the member’s employment status.
• further information from the member to assess if there are any red or amber flags. The information requested needs to be reasonable and in proportion to the level of risk believed to be present.

Red flags will apply in those circumstances where the suspicion of a pension scam will be strongest. Where red flags are identified, the trustees or managers of the transferring pension scheme must not proceed with the request for a statutory transfer.

Amber flags will apply in circumstances where there are some concerns about a pension scam, but where the position isn’t as clear as the red-flag scenarios.

The information and evidence requested must come direct from the member even where the member has a financial adviser acting for them.

If there are amber flags, the member must prove to the trustees or managers of the transferring pension scheme that they’ve obtained guidance from MoneyHelper and give them a unique reference number provided by MoneyHelper before the transfer can proceed. Where the member fails to provide evidence that they took guidance from MoneyHelper after being required to do so, it will become a red flag and the transfer should be stopped.

For more information please see the pension scams and transfer requests section of this guide, which includes examples of when red and amber flags would apply and how they must be treated.

The scheme manager of the receiving QROPS must notify HMRC:

• If the scheme ceases to be a QROPS.
• If they make a payment within the relevant period from a fund that was transferred from a UK registered pension scheme. A payment would include a lump sum, a transfer or the first instalment of pension or income. Form APSS253 is available for this purpose and more information on the timeframes can be found here.
• If any details or information about the scheme changes. ·
• If an overseas transfer charge becomes due on any funds held.

Transfer to a QROPS of a pension in payment or of a drawdown pension fund can be a recognised transfer, although this doesn’t include any contracted-out funds such as GMP and section 9(2B) rights in payment. So, a transfer could be made overseas providing certain conditions are met. For transfers of drawdown funds, a transfer must be made to a new arrangement and be done on a like for like basis.

Overseas transfers that include contracted-out funds classed as guaranteed minimum pension (GMP) benefits or section 9(2B) rights will be subject to the same HMRC requirements as transfers of non-contracted-out funds. They will also be subject to any Department for Work and Pensions (DWP) requirements and the receiving overseas scheme must also be able to hold such funds.

Many transfers from the UK to an overseas scheme will require an individual to take financial advice both in the UK and in the country the transfer is being made to. An important factor in the transfer process could be whether any guarantees or valuable benefits could be lost on transfer from a UK scheme. It’s also worth knowing if a UK scheme will permit a transfer overseas – this is particularly relevant for public sector schemes.

In addition, there is a legislative requirement to get independent financial advice or to get guidance from MoneyHelper if the member is age 50 or over and transferring with the intention of accessing their retirement benefits. If the member does not wish to get guidance from MoneyHelper they will be asked to formally opt-out of that requirement and their decision will be recorded.

Further information on overseas transfers can be found within the HMRC guidance at:

Transfers to a QROPS

Qualifying recognised overseas pension schemes

Transferring to an overseas pension scheme

Overseas transfer charge guidance (this guidance is still to be updated to reflect the introduction of the OTA)

Financial Conduct Authority (FCA) information for consumers on transferring or switching UK pensions into international self-invested personal pensions (SIPPs) can be found at:

FCA information on transferring or switching UK pensions into international self-invested personal pensions (SIPPs)