Days after the Chancellor Philip Hammond announced a new 25 percent tax charge on moving funds overseas from a U.K. registered pension scheme, the British Chartered Institute of Taxation (CIOT) criticised the move and suggested there should be additional exemptions for people who are genuinely moving overseas.
Hammond said in the Spring Budget that transfers of tax-relieved pension funds to overseas pension schemes will be subject to the charge on transfer with immediate effect.
However, he added there would not be any charge if at the point of transfer both the individual and the pension savings are in the same country, both are within the European Economic Area or the Qualifying Recognised Overseas Pension Scheme (QROPS) is provided by the person’s employer.
The Chancellor’s measure is aimed at dissuading people in the U.K. from transferring their pension savings to overseas schemes that are aimed at letting savers have early access to their money free of taxes.
The Chair of the CIOT’s Employment Taxes Subcommittee Colin Ben-Nathan said certain criteria should be applied as in many cases there will be legitimate reasons for wanting to move pension funds outside of the United Kingdom, including emigration and full-time working abroad.
“What is needed therefore is some flexibility to permit tax-free transfers in appropriate cases,” Mr Ben-Nathan added.
However critical, Be-Nathan welcomed various exemptions to the tax charge, for example, where the QROPS and individual are in the same country post transfer, both are in the EEA or the pension scheme is provided by the individual’s employer.
“These exceptions are welcome but the CIOT is concerned that they are not wide enough,” he said. “While there may be relatively small numbers of people unfairly affected, the impact on each such individual could be very significant.”
The Chancellor’s move will likely compel savers to leave their pensions where they are, providing a healthy boost to U.K. treasury coffers.
The measure is also aimed at deterring people from moving pensions into jurisdictions where their savings are no longer protected by U.K. regulators and at clamping down on people who, for example, retire to another European country while parking their pension in an offshore tax haven.
Hammond’s move came into effect on the midnight of 8 March.
Tom Selby, a senior analyst at AJ Bell, said: ‘QROPS transfer requests on or after 9 March will be hit with a 25 per cent tax charge.
At present, retirees have the option of transferring their pensions abroad as long as the scheme at the other end – known officially as ‘QROPS’ or Qualifying Recognised Overseas Pension Scheme – is approved by the U.K. tax authority.
QROPS were originally designed to make it easier for people leaving the U.K. to retire to another country and take their pension with them. However, the structure has increasingly been manipulated by those looking to artificially cut their tax bills.
Thus, the 25 percent levy for transfers to a country where the individual is not residing should act as a severe deterrent to abuse of the system, said an expert on the issue.
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