The number of overseas pension transfers to which a 25 per cent tax charge is applied has fallen by 46 per cent in just one year, according to recent data.
A Freedom of Information request, submitted by Canada Life, found the 25 per cent transfer charge, applied on certain transfers to Qualifying Recognised Overseas Pension Schemes, was levied on 13 transfers on 2019/20 and raised just over £1m.
This compares to the previous tax year where 24 transfers attracted charges totalling £760,846.
Although the number of transfers has fallen since the charge was introduced, the total accrued has risen due to larger transfers being made.
The charge was introduced in March 2017 as a way to stop people from exploiting tax loopholes when transferring pension funds out of the UK to avoid UK tax.
However, 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.
The government originally estimated the charge would raise £65m for the Exchequer in 2017/18 and £60m in both 2018/19 and 2019/20.
But the data shows that actual figures remain far below these levels.
Before the charge was introduced, the number of pension transfers to Qrops peaked in 2014/15 with 20,100 transfers valued at £1.76bn.
Andrew Tully, technical director at Canada Life, said: “The charges levied on certain pension transfers overseas has effectively done the job in limiting the appetite for moving pensions outside the UK to destinations other than the EEA.
“We’ve witnessed a steady fall in Qrops transfer activity since the peak of 2014/15 and this has only accelerated following pension freedoms and the introduction of the transfer charge.
“Despite the number of pension transfers attracting a charge being very small, and therefore the amount of tax raised as a result very low, the Treasury will be pleased another tax loophole has effectively been closed and further tax leakage prevented.”
Data published by HMRC back in July showed the total number of transfers to Qrops had dropped by 12 per cent to 4,400 in 2019/20, compared with 5,000 in 2018/19.
The overall value of transfers also suffered a drop of 14 per cent to £550m, from £640m in 2018/19.
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