QROPS transfers

When considering a transfer to a qualifying recognised overseas pension scheme (QROPS), your advice will need to take account of whether an overseas transfer charge (OTC) applies or not.

1. What is a QROPS?

A Qualifying overseas pension scheme (QROPS) is a pension scheme established outside the UK where the Scheme notifies HMRC that they meet certain conditions. The purpose of the conditions is to make sure that the scheme is treated as a pension scheme for regulatory and tax purposes in the country its established.

Further information on what those conditions are is available at PTM112100 - International: qualifying recognised overseas pension schemes (QROPS): what makes a scheme a QROPS

HMRC maintain a list of recognised schemes at ROPS schemes.

2. Transfers from Registered pension schemes

The Government allows transfers to QROPS to enable people permanently leaving the UK to simplify their affairs by allowing them to take their pension savings with them. Broadly, the Government intends that individuals who transfer to such schemes should be in the same position as someone who remains in the UK with the pension savings.

In order to achieve that policy aim, there are specific allowances, charges and disclosure requirements on such transfers.

3. What is the overseas transfer charge?

Transfers from registered pension scheme to QROPS may be subject to a tax charge. The overseas transfer charge (OTC) is a 25% tax charge that applies on a transfer to a QROPS if:

• your client doesn’t meet the criteria to be excluded (see next section), or
• your client meets the exclusion criteria, but the transfer will exceed their available overseas transfer allowance (OTA).

If no exclusions apply, making the full amount chargeable, there will not be an additional charge on the amount transferred that exceeds the available OTA. This means the same money will not be charged twice.

4. Exclusion criteria

The criteria to be excluded from paying the OTC the client must meet one of the conditions below for a set amount of time:

• Both the client and the QROPS are in the same country
• The QROPS is provided by the clients employer

The conditions must be met at the time of transfer and for the following 5 tax years. If the conditions cease applying within that time period, the QROPS  will need to deduct the OTC from the account and pay it to HMRC. If the conditions didn’t apply at transfer but came to apply in the following  5 tax years, the OTC can be reclaimed.

The registered pension scheme administrator, or QROPS as appropriate, is jointly and severally liable for the tax charge and are required to deduct and pay it to HMRC.

5. The overseas transfer allowance 

From the 6 April 2024, an overseas transfer allowance has been introduced. It effectively replaces the benefit crystallisation test that used to apply under the lifetime allowance regime.

Effectively, the OTA only applies to transfers that are otherwise out of scope of the overseas transfer charge, because the client met one of the exclusion criteria listed above. If a client meets the exclusion criteria, the amount being transferred will be tested against the clients available overseas transfer allowance (OTA).

The OTA is equal to the client’s lump sum and death benefit allowance (LSDBA). This means that the OTA is £1,073,100 unless the client has a form of protection.

To calculate the available OTA at the point of transfer to the QROPS, you should:

• Deduct the value of any previous transfers to a QROPS that occurred after April 5, 2024, and
• Deduct the lifetime allowance used by any Benefit Crystallisation Events (BCEs) that happened before April 6, 2024, excluding BCE1 (designation to drawdown)

The OTA operates separately from Individual's lump sum allowance (ILSA) and Individual's lump sum and death benefit allowance (ILSDBA). Therefore, a transfer to a QROPS will not reduce either allowance.