Financial advisers in the UK have been warned to brace for enquiries about how to safely move a pension to another country after the government abruptly changed the rules on overseas transfers.
In yesterday’s (8 March) Spring Budget chancellor Philip Hammond introduced a 25 per cent charge on qualified recognised overseas pension scheme (Qrops) transfers in an effort to deter those who use the process to avoid paying UK tax.
Advisers will need to brush up on their overseas transfer knowledge, according to Montfort International Ltd managing director Geraint Davies, who said nationals of other countries living in the UK will “need specialist financial advice now more than ever”.
He added suitability reports on Qrops and pension funding will need to be robust going forward, and that an exit strategy must be considered within this.
Qrops floggers are about to be flogged with Hammond’s cat of nine tails.Geraint Davies“Expect the FCA to be watching this advice with eagle and suspicious eyes where it involves anybody who could potentially depart the UK.
“The devil will be in the detail. Qrops floggers are about to be flogged with Hammond’s cat of nine tails,” Mr Davies said.
Stewart Davies, group chief executive of Momentum Pensions, said that he is “extremely concerned” about the surprise charge on Qrops, which he called a “tax on geographically mobile people who are assiduously planning for their future and providing for their retirement”.
Advisers with clients who may one day want to transfer their pension to another country could be left scrambling to come to terms with the new rules, which take effect immediately.
“The fact it will come into play so quickly is concerning as this will leave many advisers unprepared and uncertain about what to advise – which is as far from the ideal as you can get in a pensions sector which should be encouraging transparency and clarity in processes.
“We are crunching the numbers as we speak and will be in touch with our adviser partners shortly to help them make sense of today’s development,” said Momentum’s Mr Davies.
There are some situations where Qrops will not apply, such as if both the individual and the Qrops are in the same country after the transfer, or the Qrops is in one country in the European Economic Area (EEA) and the individual is resident in another EEA after the transfer.
James Badcock, partner at private client law firm Collyer Bristow, said that the new Qrops rules recognise those moving abroad may have a legitimate desire to move their pension pot from a UK scheme to an overseas scheme.
However, he said the rules have been abused and some providers have marketed Qrops aggressively and led people to use them inappropriately.
Mr Badcock warned that the government has also introduced a rule that payments out of funds transferred to a Qrops on or after 6 April will be subject to UK tax rules for five years after the date of transfer, even if the client is non-UK resident.
“Taxpayers need to be much more aware of the complications of taking out a Qrops and seek professional tax advice before doing so.”
julia.faurschou@ft.com
