The number of qualifying recognised overseas pension schemes attracting the 25 per cent overseas transfer charge has significantly dropped in the past year, according to official data.
According to a freedom of information request, published on Friday (September 6) by Canada Life, the 25 per cent transfer charge, introduced in the March 2017 Budget, was levied on 24 Qrops transfers in the tax year 2018-19, raising £760,846 in tax.
This is a fall of 20 per cent compared to 2017-18 where 30 transfers attracted charges totalling £1.4m.
The amount of tax raised is well below what the government originally estimated. In 2017 the government expected the measure to raise £65m in 2017-18 and £60m in 2018-19.
The 25 per cent tax charge on transfers to a Qrops was introduced to stop people from exploiting tax loopholes when transferring pension funds out of the UK to avoid UK tax.
The overseas transfer charge is effective for transfers requested on or after March 9, 2017 and the extended taxing provisions on payments out of Qrops are effective on and after April 6, 2017.
But scheme members can claim back this charge if circumstances have changed and they are now exempt, for example if the person transferring the funds becomes a tax resident in the country that the Qrops is based in.
Andrew Tully, technical director at Canada Life, said: “It looks like the Qrops charge has done the job in limiting the appetite for moving pensions outside the UK to destinations other than the European Economic Area.
“The pension freedoms will also have had an effect in the general decline in the number of transfers to Qrops, simply because of the greater flexibility in how people can access their pensions in the UK.
“The number of pension transfers attracting a charge is a very small proportion of the overall number of transfers to Qrops, and as a result the amount of tax raised is very low.
“However, I’ve no doubt the Treasury will be pleased another tax loophole has effectively been closed and further tax leakage prevented.”
Data published by HM Revenue and Customs in July showed that although the number of transfers to Qrops increased slightly to 5,000 in 2018-19, up from 4,700 in 2017-18, the total value of these transfers was £640m, down from £740m.
Between 2014-15 and 2017-18, the number of transfers declined quicker than their value, which resulted in increasing average values over time.
However, in 2018-19, the average value of transfers decreased for the first time since 2011-12 to £128,000 while the number of transfers actually rose.
This led to a fall in average transfer values.
What do you think about the issues raised by this story? Email us on email@example.com to let us know