The Treasury has confirmed it is uncertain whether pension transfers to an EEA-based Qualifying Recognised Overseas Pension Scheme (Qrop) will be exempt from tax after Brexit.
In his answer to a written question from Labour MP for Bristol West, Thangam Debbonaire, the economic secretary to the Treasury, John Glen, stated the tax status of such transfers would depend on the Brexit deal achieved.
He wrote: "The regulations that allow a tax-free transfer of a private pension scheme to a Qrop within the EEA are domestic law which currently comply with EU fundamental freedoms.
"Whether or not these transfers will be exempt from the overseas transfer charge once the UK leaves the EU is dependent upon the terms of future exit agreement between the UK Government and the EU."
In March 2017, a 25 per cent tax on Qrops transfers outside of the EEA was introduced by then-chancellor of the exchequer Philip Hammond to deter individuals from moving their pensions overseas to avoid tax.
The charge applies unless 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.
Fees can be waved if the Qrops is an occupational pension scheme set up by the individual’s employer, or if the Qrops is an overseas public service pension scheme and the individual is employed by one of the employer’s participating in the scheme.
The government said at the time it expects the charge to raise about £65m in 2017 to 2018, and an additional £120m from 2018 to 2020.
Pension experts predicted the tax could deter people from retiring overseas and lead to the market being "shut down".
Indeed, figures published by HM Revenue & Customs in July showed the number of transfers had almost halved in 2017/18 to 4,700 transfers, down from 9,700 transfers in the year before. The transfer value had shrunk from £1.2bn to £740m.
Alex Norwood, adviser and pension transfer specialist at Montfort International, said advisers may struggle to find alternative options for their clients if an overseas tax is introduced.
He said: "The charges to Qrops in EEA would be difficult to implement to what is a restricted market.
"When there was an overseas tax charge announced last year, we saw it having an immediate impact on firms with clients who had clients looking to transfer to countries not in the EEA.
"But if charges were to be put on Qrops after Brexit, it wouldn’t put a complete stop to this sort of activity. Advisers would probably need to start considering other options for clients who wanted to retire abroad but it is difficult to see what other paths they could take."
rosie.quigley@ft.com
