HM Revenue & Customs (HMRC) is seeking to clarify how consumers can recoup the 25 per cent overseas pension transfer charge if the transfer is exempt.
The taxman published two consultations this week on the process it uses for the repayment of this charge on Qualifying Recognised Overseas Pension Schemes (Qrops).
This follows Philip Hammond's 2017 spring budget, in which he announced that from March that year all Qrops transfers were subject to a 25 per cent tax charge, with some exceptions, such as if the scheme is based in the same country as the retiring individual.
The first consultation introduces provisions for the repayment of the charge, including setting out the conditions for making a claim, the procedure for processing a claim, the appeal provisions and specifying to whom the repayment must be made.
According to the document, a claim for repayment of the overseas transfer charge must be in writing, in a form prescribed by the commissioners for HMRC, and include information such as the date of the transfer, the amount, and the reason for the exclusion, among other details.
The second document makes changes to existing regulations in order to align them with the new requirements in the first set.
David Everett, partner at consultancy firm LCP, said there are certain cases where the 25 per cent charge needs to be repaid, such as where it "was paid in error, or the individual’s circumstances changed so the original transfer is now exempt".
He added: "Although HMRC has had processes in place for some while to deliver on this, they have only been set out in guidance. These regulations now formalise them."
He added that the tax charge appears to have succeeded in its aim to stem the tax losses to the Exchequer caused by the growing popularity of Qrops.
FTAdviser reported in October that £1.4m was paid in Qrops transfer charges to HMRC during the 2017 to 2018 tax year.
Claire Trott, head of pensions strategy at St. James’s Place, said when the original details of the overseas transfer charge were published the bit of the puzzle that was missing was the repayment of charges that no longer applied.
She explained this was likely to be cases where a transfer proceeds before the client moves to the same jurisdiction.
She said: "Anything that clears up legislation to give the desired outcome should be welcomed.
"For those that want to move their pensions while still in the UK to a jurisdiction they will be moving to shortly should now have comfort that there will be a process in place to facilitate the repayment of the charges.
"In this scenario the overseas transfer charge would still apply at outset so pension members need to understand that if they don’t move at all, or if the move is delayed and falls outside of the reclaim period 25 per cent of their pension fund will be lost."
Ms Trott added that transfers to Qrops was a "specialist area and shouldn’t be undertaken lightly".
She added: "Historically we have seen many people transfer overseas when in the long term it wouldn’t be of benefit and are now trying to transfer back, at significant cost in both time and fees.
"Although the overseas transfer charge may feel punitive it does mean that overseas transfers are really only being used for those that are retiring abroad and not to just avoid other pension taxes."
HMRC’s consultation closes on 7 December with the regulations expected to come into force on 24 April 2019.
maria.espadinha@ft.com
