A further charge of at least 15 per cent of the amount transferred will apply to the transferring scheme administrator. If they have completed a full transfer out, it will not be possible to deduct this from the scheme and the transferring scheme administrator will be liable to pay from their own funds.
The potential tax charges involved mean that UK registered pension schemes will undertake their own checks on the status of the receiving scheme.
Transfer process
When a UK scheme receives a request to transfer to a Qrops, they should (within 30 days of the request) ask the member to provide certain information and sign a declaration stating they understand that the transfer could lead to significant tax penalties. The member can provide this information and declaration either in a letter, or by completing and signing HMRC form APSS263.
This should be completed, signed and returned by the member within 60 days of their original request for the transfer.
The transferring scheme should undertake its own checks to ensure the receiving scheme is a Qrops and therefore any transfer is a recognised transfer for the purposes of the legislation.
A lifetime allowance test must also be carried out at the point of transfer.
Once the transfer is complete, the transferring scheme provides a list of information to HMRC. This includes details of the individual making the transfer, the transfer itself, and the Qrops receiving the transfer.
This information must be supplied to HMRC within 60 days of the transfer by using form APSS262.
Lifetime allowance
A transfer made to a Qrops by an individual before they reach age 75 is a benefit crystallisation event, BCE8. A test must be carried out against the member’s lifetime allowance for any amount crystallising.
The amount crystallising at BCE8 is the total of the cash plus the market value of any assets transferred. There is an allowance for any funds previously designated to drawdown or scheme pension.
Any part of the transfer payment crystallising over and above the individual’s lifetime allowance will be treated as a retained amount and subject to a lifetime allowance excess tax charge of 25 per cent. This will be accounted for and paid to HMRC by the transferring scheme.
The scheme administrator must tell the member if any tax is due and the percentage of standard lifetime allowance used up by the BCE8.
If the transfer is subject to the overseas transfer charge (see below) then the amount to be deducted for the payment of the overseas transfer charge does not reduce the amount to be crystallised through BCE8, although it will reduce the amount actually received by the Qrops.
The overseas transfer charge
