In March 2017, Philip Hammond, the Chancellor advised his commitment to fight the abuse of foreign pension schemes in his passion to deal with tax avoidance which is taking place throughout the country.
During the Spring Budget, he announced that he has a number of different measures he wishes to tackle when it comes to the non-compliance of taxes, this included his focus on foreign pension schemes which is abusive at best.
Some of the other measures he discussed including new financial penalties on professionals who enabled tax avoidance that defeated the HMRC and adding a UK VAT to roaming Telecom schemes, to name a few.
During his speech, the chancellor advised that these measures could raise an estimated eight hundred and thirty billion Pounds Sterling. He did advise the house that the United Kingdom does in fact have the lowest tax gap recorded in the world, but there is more than can be done to increase revenue.
QROPS, which are qualified recognised overseas schemes, which enables those looking to introduce their pension overseas would result in a twenty five percent charge. These schemes are legal and are allowed in the United Kingdom and are growing in demand on a daily basis. The Budget document clearly stated a twenty five percent charge on all QROPS transfers moving forward.
The charge is being set for those people who want to reduce the tax they will have to pay by taking advantage of transferring their pension abroad. Of course, they cannot tax everyone and there will be exceptions to this rule which will allow some transfers to remain tax-free. The tax free transfers will be those who need to transfer their pension for a genuine reason. This includes when the pension and the person are both within the European Economic Area for example.
The twenty five percent charge on qualified recognised overseas schemes, QROPS, is expected to raise around sixty five million Pound Sterling between 2017 and 2018 and a further sixty million Pound Sterling between 2018 to 2019. They are anticipating another sixty five million Pound Sterling from 2020 to 2021 and again from 2021 to 2022.
After Brexit was announced there has been a significant increase in enquiries regarding to the transfer of pensions abroad, this was before the imminent offset of Article 50. HMRC have also announced that they will be closing their online services for the management of qualified recognised overseas schemes, which means that those who use these schemes will be required to rely on existing reference material and physical forms as a result.
QROPS, the qualified recognised overseas pension schemes are overseas pension schemes which meet the strict HMRC requirements and up to now have been enabling individuals to transfer their pension scheme abroad while not having to pay income tax on the amount. It also meant that in the event of death, beneficiaries would be tax free of the fifty five percent charge that is normally placed.
It is very common for individuals who are emigrating abroad and rather than leaving their pension in the United Kingdom, they could seek a pension scheme in their new country of residence that met the HMRC guidelines, taking their pension with them.
It is an effective way to move your pension if you are thinking of moving overseas. Originally the pension could pay out after five years of the person being a non-UK resident without taxes and it offers flexibility and choices for the pension holder.
Before looking at QROPS, it is advisable to seek professional advice, as it is not always the best choice for everyone.