PTM102200 - Transfers: transfers to a QROPS: essential principles of the overseas transfer charge
Glossary |
The overseas transfer charge is an income tax charge that applies to certain:
- recognised transfers from a registered pension scheme to a qualifying recognised overseas pension scheme (QROPS)
- transfers from a relieved relevant non-UK scheme (RNUKS) to a QROPS, or
- onward transfers from a QROPS, or former QROPS, to another QROPS.
If a transfer is not subject to an overseas transfer charge when it is made it can still become subject to the charge if circumstances change within the ‘relevant period’ – see PTM102400.
If a transfer was subject to an overseas transfer charge, the charge may become repayable if circumstances change after the transfer – see PTM102600.
When an overseas transfer charge arises on a transfer from a registered pension scheme
When an overseas transfer charge arises on a transfer from a relieved RNUKS
When an overseas transfer charge arises on a transfer from a QROPS or former QROPS
The overseas transfer allowance
When liability to an overseas transfer charge arises after a transfer due to a change in circumstances
The amount of an overseas transfer charge
Who is liable to pay an overseas transfer charge?
Paying an overseas transfer charge
Discharge from liability to an overseas transfer charge
Repayment of an overseas transfer charge
When an overseas transfer charge arises on a transfer from a registered pension scheme
Sections 244AA to 244F and sections 244IA to 244IC Finance Act 2004
A recognised transfer from a registered pension scheme to a QROPS that was requested on or after 9 March 2017 may be subject to an overseas transfer charge. PTM102300 gives details of what constitutes a transfer requested before 9 March 2017.
The transferred value of a recognised transfer will be subject to an overseas transfer charge under section 244AC if none of the following five exclusion conditions is met:
- The member is resident in the same country as that in which the QROPS receiving the transfer is established.
- The QROPS receiving the transfer is established in Gibraltar or a country within the European Economic Area (EEA) and the member is UK resident or resident in a country within the EEA or Gibraltar.
- The QROPS is set up by an international organisation for the purpose of providing benefits for, or in respect of, past service as an employee of the organisation and the member is an employee of that international organisation. PTM112200 provides guidance on the definition of an international organisation. It does NOT simply mean a multi-national employer.
- The QROPS is an overseas public service pension scheme and the member is an employee of an employer that participates in the scheme.
- The QROPS is an occupational pension scheme and the member is an employee of a sponsoring employer under the scheme.
Go to PTM102300 to see full details on how to satisfy these exclusion conditions and if a transfer is excluded from an overseas transfer charge under section 244AC.
Section 244I Finance Act 2004
These exclusions are subject to the member having provided the scheme administrator with the required information, set out at PTM102900, before the transfer. If the member has not provided this information before the transfer, it will be subject to an overseas transfer charge under section 244AC.
Sections 244IA to 244IC Finance Act 2004
Where an individual’s total transfers to a QROPS from a registered pension scheme or a relieved RNUKS:
- exceed their available overseas transfer allowance (see below), and
- the transfer is excluded from an overseas transfer charge under section 244AC
the excess of the transferred value above the member’s available overseas transfer allowance will be subject to an overseas transfer under section 244IA.
When an overseas transfer charge arises on a transfer from a relieved RNUKS
Sections 244AA to 244F and sections 244IA to 244IC Finance Act 2004
From 6 April 2024, an overseas transfer charge under either section 244AC or section 244IA may apply to a transfer from a relieved relevant non-UK scheme to a QROPS unless it is a block transfer.
A block transfer is a transfer in a single transaction of all of the individual’s sums and assets in the relieved RNUKS relating to the individual and at least one other member of the scheme. A single transaction means that all of the transferred sums and assets must be transferred to one scheme.
If the transfer is not a block transfer, the conditions to determine whether or not an overseas transfer charge arises are the same as those for transfer from registered pension schemes, as set out above.
When an overseas transfer charge arises on a transfer from a QROPS or former QROPS
Sections 244AC, 244G(3) and 244IA Finance Act 2004
A transfer from a QROPS or former QROPS may be subject to an overseas transfer charge only if the transfer is:
- an ‘onward transfer’ in respect of an ‘original transfer’,
- made in the ‘relevant period’ for the original transfer, and
- made out of the member’s ring-fenced transfer funds.
An onward transfer made in the relevant period will be subject to an overseas transfer charge under section 244AC unless one of the exclusion conditions are met.
In addition to the five exclusion conditions outlined above, an onward transfer may also be excluded a charge under section 244AC:
- so far as it relates to pre-9 March2017 funds, or
- an overseas transfer charge (other than a charge under section 244IA) has been paid in respect of an earlier transfer of those sums and assets and has not become repayable.
Go to PTM102300 for full details of the exclusion conditions in relation to a charge under section 244AC and when the transfer is excluded from that tax charge.
An onward transfer made during the relevant period will only be subject to an overseas transfer charge under section 244IA if:
- the original transfer was a block transfer from a relieved RNUKS on or after 6 April 2024
- the onward transfer meets one or more of the exclusion conditions so that a charge under section 244AC does not apply, and
- the transferred value exceeds the member’s available overseas transfer allowance.
In these circumstances, the excess of the transferred value above the member’s available overseas transfer allowance will be subject to an overseas transfer charge under section 244IA.
Section 244AB(3) Finance Act 2004
As a member’s funds under a QROPS can relate to a number of different sources, the overseas transfer charge legislation treats each source as a separate transfer. So, when a transfer takes place, each ring-fenced transfer fund is tested separately to determine if and how a charge applies.
An onward transfer
An onward transfer is a transfer of a member’s rights under a QROPS (or former QROPS) to another QROPS to provide benefits in respect of that individual under the new QROPS. For an onward transfer to be subject to the overseas transfer charge it must relate to an ‘original transfer’.
An original transfer
An original transfer is either:
- a recognised transfer from a registered pension scheme to a QROPS
- a transfer of all or part of a member’s UK tax -relieved fund (see PTM113230 for definition) to a QROPS
As an onward transfer is excluded from an overseas transfer charge unless it is made out of a ring-fenced transfer fund, original transfers that may be chargeable are:
- recognised transfers made from a registered pension scheme to a QROPS on or after 9 March 2017
- a transfer of a UK tax-relieved fund made from a scheme that was a QROPS on or after 9 March 2017
- a transfer on or after 6 April 2017 of a UK tax-relieved fund made from a scheme that wasn’t a QROPS when the transfer was made.
An onward transfer is in respect of an original transfer if it is a direct transfer or a chain of transfers.
Example
George transferred his pension rights from the Red Registered Pension Scheme to Yellow QROPS. George then transfers his pension rights from Yellow QROPS to Green QROPS. The transfer from Yellow QROPS to Green QROPS is an onward transfer as the transferred rights derive from the original transfer from the Red Registered Pension Scheme.
Later George transfers his pension rights from Green QROPS to Blue QROPS. The transfer from Green QROPS to Blue QROPS is also an onward transfer as the transferred rights derive from the original transfer from the Red Registered Pension Scheme.
The relevant period
The relevant period starts from the date of the original transfer (the ‘key date’) and ends:
- where the transfer is made on 6 April, five years from that date
- where the transfer is made on any other date, the period from that date until the next 5 April plus a further five years from the next 6 April
For example, if the transfer is made on 13 June 2017, the relevant period runs until 5 April 2023 (13 June 2017 to 5 April 2018 plus 6 April 2018 to 5 April 2023).
The overseas transfer allowance
Sections 244IB and 244IC Finance Act 2004
A member’s overseas transfer allowance is equal to the amount of their lump sum and death benefit allowance (see PTM174200).
The member’s available overseas transfer allowance is the amount of their overseas transfer allowance as reduced (but not below nil) by the transferred value of any previous:
- recognised transfer from a registered pension scheme to a QROPS
- transfer of UK tax-relieved funds from a relieved RNUKS to a QROPS, where that transfer is not a block transfer, and
- onward transfer of funds in relation to which the original transfer was a block transfer from a relieved RNUKS.
On the first occasion that the member makes a recognised transfer or relieved relevant non-UK scheme transfer to a QROPS on or after 6 April 2024, an amount is deducted from their available overseas transfer allowance which is equal to 100% of their lifetime allowance as used before 6 April 2024. Again, this cannot reduce the amount of their overseas transfer allowance below nil.
Example
The amount of lifetime allowance used was £1,073,100 x 60% = £643,860
His available overseas transfer allowance before making this transfer is:
£1,073,100 - £643,860 = £429,240
After making this transfer, his remaining overseas transfer allowance is:
£429,240 - £200,000 = £229,240
When liability to an overseas transfer charge arises after a transfer due to a change in circumstances
Sections 244AC to 244C Finance Act 2004
If a transfer is not subject to an overseas transfer charge under section 244AC when it is made it can still become subject to the charge if circumstances change within the ‘relevant period’ (see above for definition). This broadly occurs when a transfer was excluded from the charge based on the member’s country of residence, and the member later moves so that they no longer satisfy the exclusion condition. PTM102400 provides more information on when an overseas transfer charge arises due to a change of circumstances after the transfer.
The amount of an overseas transfer charge
Sections 244JA and 244K Finance Act 2004
The way the amount of an overseas transfer charge is calculated differs depending on whether the charge arises under section 244AC or section 244IA, and whether it is on an original transfer or an onward transfer.
Where the charge arises on an original transfer:
- if the charge is under section 244AC, it will be 25% of the ‘transferred value’
- if the charge is under section 244IA, it will be 25% of so much of the ‘transferred value’ that is above the member’s available overseas transfer allowance at the time the transfer is made.
Where the charge arises on an onward transfer:
- if a charge under section 244IA arose on the original transfer, it will be 25% of so much of the ‘transferred value’ of the original transfer as did not exceed the member’s available overseas transfer allowance at the time that transfer was made
- otherwise, it will be 25% of the ‘transferred value’.
The ‘transferred value’ is not simply the total amount of the sums and market value of the assets transferred to the QROPS. How the amount of the ‘transferred value’ is calculated depends on
- where the transfer is from a registered pension scheme - whether or not the scheme administrator deducts the relevant tax charges before making transfer
- where the transfer is from a QROPS or former QROPS, to what extent the payment is made from a ring-fenced transfer fund, if the charge has previously been paid and if the scheme manager deducts the relevant tax charges before making transfer.
PTM102500 explains how to calculate the ‘transferred value’ and the amount of an overseas transfer charge.
Who is liable to pay an overseas transfer charge?
Section 244J Finance Act 2004
Where the overseas transfer charge arises on the transfer from a registered pension scheme, the scheme member and scheme administrator will be jointly and severally liable to the charge. The scheme administrator should deduct any tax due from the member’s funds before making the transfer. If the scheme administrator does not do this the amount of the overseas transfer charge will increase – see PTM102500.
Where the overseas transfer charge arises on the onward transfer from a QROPS or former QROPS, the scheme manager of the transferring scheme and member are jointly and severally liable to the charge. The scheme manager should deduct any tax due from the member’s funds before making the onward transfer. If they don’t do this the amount of the overseas transfer charge will increase – see PTM102500.
Where the overseas transfer charge arises on a transfer from a relieved RNUKS, the member is solely liable to the charge.
PTM102400 explains who is liable to pay the overseas transfer charge where it arises due to a change of circumstances after the transfer.
Liability to the tax charge arises whether or not any liable person is UK resident or UK domiciled.
Paying an overseas transfer charge
Where the scheme administrator is liable to the overseas transfer charge, it should be reported and paid using Accounting for Tax return (AFT) process. Go to PTM103050 for more information of the action a scheme administrator should take on a transfer to a QROPS.
Where the scheme manager is liable to the overseas transfer charge, HMRC will issue the scheme, manager with payment instructions following receipt of the scheme manager’s report that the charge is due– see PTM103150.
The member must report the tax charge (and pay any outstanding overseas transfer charge) using the Self-Assessment (SA) system. They need to do this even if the scheme administrator or scheme manager has already paid all the tax due to HMRC. Normal SA filing and tax payment rules apply.
Discharge from liability to an overseas transfer charge
Section 244N Finance Act 2004
The transferring pension scheme administrator or scheme manager is generally dependent on the information provided by the member when deciding if a transfer is subject to the overseas transfer charge. Where:
- a transfer is subject to an overseas transfer charge and
- the scheme administrator or scheme manager did not deduct and pay the tax to HMRC because they thought the transfer was not taxable
they may apply to HMRC for a discharge from liability to the tax charge. PTM102700 provides more information about this.
Repayment of an overseas transfer charge
Section 244M Finance Act 2004
The member’s circumstances may change after the transfer so that a transfer that was subject to an overseas transfer charge under section 244AC may now satisfy one of the exclusion conditions. Where this occurs the overseas transfer charge may become repayable. PTM102600 provides guidance on when the tax charge becomes repayable and how to obtain a repayment.