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HMRC internal manual

Pensions Tax Manual

The lifetime allowance and the lifetime allowance charge: benefit crystallisation events: each of the benefit crystallisation events (BCEs) in detail: BCE 8 transfer to QROPS

Glossary PTM000001
   

Transfer to a qualifying recognised overseas pension scheme
Amount crystallising
Process of testing for the lifetime allowance for BCE 8

Section 216(1)-BCE 8 Finance Act 2004

Paragraphs 2 Schedule 32 Finance Act 2004

See PTM088100 for an overview of the benefit crystallisation events (BCEs) and the lifetime allowance.

Transfer to a qualifying recognised overseas pension scheme

A BCE 8 occurs when a member, before they reach age 75, makes a recognised transfer from a registered pension scheme to a qualifying recognised overseas pension scheme (QROPS). This means that the values of transfers overseas from all types of arrangement are tested against the lifetime allowance.

Guidance on transfers to a QROPS starts at PTM101999.

Effective date of event

The effective date of the event is the date the assets/funds leave the scheme (not when they are received overseas).

The date a transfer can be said to leave a scheme is a legal question. It will be the point when a clear agreement is in place (including the completion of any transfer application and acceptance process) such that both schemes accept that the beneficial or equitable interest under the registered pension scheme has been transferred.

The fact that the conveyance of any legal title to any assets being transferred may stray does not alter the above. This follows an understanding of law that it is not necessary to complete the formalities of transferring the legal title to an asset to convey the underlying beneficial interest. As a test of effectiveness, it should be considered whether, had the member died on a particular date, death benefits would have been payable from the transferring registered pension scheme.

Amount crystallising

Sections 216(1)-BCE 8 and 244K(10) Finance Act 2004

The amount crystallising at the BCE is the total of:

  • any money transferred from the scheme, and
  • the market value of any assets similarly transferred.

If a transfer to a QROPS is subject to the overseas transfer charge the amount crystallising is calculated as if the charge did not arise on the transfer.  That means any deduction from the amount to be transferred to pay the overseas transfer charge and consequential reduction to the amount of sums and assets actually transferred to the QROPS is ignored.

Where a chargeable amount arises, any lifetime allowance charge paid by the scheme administrator effectively forms part of that chargeable amount. The amount crystallising through BCE 8 will be the actual amount paid as a transfer value (before any reduction for the overseas transfer charge) less any deduction made by the scheme administrator to cover any lifetime allowance charge due. 

The chargeable amount will be what crystallises (net) through BCE 8 (and any other BCE), over and above the member’s available lifetime allowance, plus the charge paid by the scheme administrator.  PTM085000 explains why this is and gives more detail.

PTM102530 gives examples of the calculation of BCE 8 and interaction with the overseas transfer charge.

Transfer of assets used to secure the entitlement to a drawdown pension that arose before 6 April 2006

Article 29 The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572

There will be no BCE 8 in respect of so much of the transfer from a drawdown pension fund that represents unsecured pension in payment on 5 April 2006 - see PTM088300.

Prevention of double counting

Paragraph 17 Schedule 32 Finance Act 2004

Section 169(1B) to (1E) and paragraph 17 Schedule 32 Finance Act 2004

The Registered Pension Schemes (Transfer of Sums and Assets) Regulations 2006 - SI 2006/499

Unlike for a transfer of crystallised rights from a registered pension scheme to another registered pension scheme, where no further BCE occurs, a transfer to a QROPS will produce further BCE i.e. a BCE 8 and so a further test against the lifetime allowance is undertaken.

Where a BCE 1 for a drawdown pension or a BCE 2 for a scheme pension may have applied at the time of the original entitlement to benefits, overlap provisions will apply. This will have the effect that the amount crystallised (or an appropriate proportion) under the original BCE 1 or 2 will be deducted from the amount crystallised under the BCE 8 occurring on transfer.

Where the BCE occurs after repayment of the overseas transfer charge

Paragraph 2A Schedule 32 Finance Act 2004

An individual may make a recognised transfer from a registered pension scheme to a qualifying recognised overseas pension scheme (QROPS) that is subject to the overseas transfer charge, but that tax charge subsequently becomes repayable.  PTM102600 explains when this may occur.

Where HMRC repays the tax charge to a registered pension scheme administrator this amount must be used to provide benefits, or a transfer, in accordance with the scheme rules.  If a BCE occurs under the scheme in respect of funds that represent the repaid overseas transfer charge, an adjustment can be made to account for the fact that those funds have previously been tested as a BCE 8. 

Go to PTM102600 for guidance on how the amount crystallising is adjusted in these circumstances.

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Process of testing for the lifetime allowance for BCE 8

Section 215, 218, 219 and 220 Finance Act 2004

Regulation 3 - ‘reportable event 9’, The Registered Pension Schemes (Provision of Information) Regulations 2006 - SI 2006/567

The process the scheme administrator follows here is exactly the same as where any form of authorised benefit is paid out, i.e. as with BCEs 1 to 6.

Any chargeable amount identified will be treated as a retained amount, with the lifetime allowance charge becoming due at the rate of 25 per cent. This is because even though the amount/assets transferred are paid out of the scheme they are not paid ‘to the individual’. See PTM085000 for a further explanation on the rate of lifetime allowance charge imposed here.

The scheme administrator is also obliged to report the transfer to HMRC - see PTM161000.