Overseas transfer allowance and overseas transfer charge

1. Overseas transfer allowance (OTA)

A new ‘Overseas Transfer Allowance’ (OTA) will be introduced for transfers to QROPS and will be equal to the client’s Individual lump sum and death benefit allowance (ILSDBA). This means that the  OTA is £1,073,100 unless the client has a form of protection. It will operate separately from Individual's lump sum allowance (ILSA) and Individual's lump sum and death benefit allowance (ILSDBA) so a transfer will not reduce either allowance.

Before a transfer to a QROPS takes place the transfer value will be assessed against the clients available OTA. If the transfer value exceeds the OTA, the excess will have a tax charge as described in section 3.

2. Available overseas transfer allowance

The available overseas transfer allowance is reduced by previous transfers to a QROPS that take place after 5/4/24. It is also reduced by previously used lifetime allowance. HMRC has made regulations to this effect however they currently lead to double counting of crystallised funds instead of just testing the growth. We are awaiting further regulations to be made to clarify this. In the meantime HMRC have advised that transfers to QROPS should be deferred.

3. Overseas transfer charge (OTC)

The overseas transfer charge is 25%. It currently exists for members that don’t meet any of the following exclusion conditions:

1. Both the member and the QROPS are in the same country.
2. Both the member and the QROPS are within the UK, Gibraltar or Economic Area.
3. The QROPS is provided by the members employer.

Going forward there will also be a charge if the member meets one of the above exclusion conditions but the transfer value exceeds the clients available OTA. Where that happens the excess will pay a 25% tax charge.

The new rules will not make a charge on the same money twice, meaning if no exclusions apply making the full amount is chargeable, then there will not also be a charge on the amount of transfer exceeding the available OTA.

For example

• If member A transfers £1,500,000 and no exclusions apply (see 3 bullets above), the full £1,500,000 pays 25%.
• If member B transfers £1,500,000 million and exclusions apply, the amount above £1,073,100 pays 25% (due to exceeding the OTA).
• If member B who transferred above now loses the exclusion, they will now pay an additional 25% on the £1,073,100.