Brexit could hit pension pots of UK expats

Brexit could hit pension pots of UK expats

UK expats looking to do pension transfers after the Brexit transition period could be hit by a 25 per cent overseas transfer charge, Blevins Franks has warned.

Under current rules the 25 per cent tax charge on transfers to overseas pensions does not apply to any transfers within the EU/European Economic Area (EEA).

And in February, as HM Revenue and Customs updated its pensions tax manual as a consequence of the UK leaving the EU, it seemed that the rules would stay the same for now.

In particular, HMRC clarified that the pensions tax charge would not be payable if the Qrops receiving the transfer is established in a country within the EEA or Gibraltar and the member is UK resident, or resident in a country within the EEA or Gibraltar.

But Jason Porter, director of Blevins Franks, warned the government may yet decide to make changes to these rules following Brexit.

He said: "As things stand, Brexit should not affect how they can withdraw or transfer other UK pensions. However, the UK currently applies a 25 per cent ‘overseas transfer charge’ on pension transfers outside the EU/EEA.

"This could be easily extended once the UK is no longer bound by EU freedom of movement of capital, so there may be limited time to transfer without penalties."

The 25 per cent tax charge on transfers to a qualifying recognised overseas pension schemes (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.

David Everett, partner at consultancy firm LCP, agreed after the transitional period on December 31 there is nothing to stop the UK government from changing which destinations are exempt from the tax charge.

He said: “Post-transition, EU countries are no different from a UK point of view to non-EU countries. But it depends upon what the future of our relationship with the EU will be as to whether the government makes any changes to the overseas pensions regime.”

But Mr Everett said there was no rush to push through any pension transfers as it will be a while before any changes will come into force.

He added: “Nothing can happen until we get to the end of the year and it will also take primary legislation as the rules surrounding the tax charge are included in the Finance Act 2004.

“There could be something in the Budget about this but it isn’t something they can whip out via statutory instrument and be rushed through.