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HMRC internal manual

Pensions Tax Manual

Transfers: transfers to a QROPS: examples of calculating the amount of the overseas transfer charge on transfer from a registered pension scheme

Glossary PTM000001
   

LTA charge not due, overseas transfer charge paid by deduction from the transfer
LTA and overseas transfer charge due, both deducted from the member’s funds
No LTA charge, transfer not reduced for overseas transfer charge
Example for non-UK registered pension scheme

LTA charge not due, overseas transfer charge paid by deduction from the transfer

Kiki has pension rights valued at £500,000 under a UK-based registered pension scheme.  Kiki has not previously crystallised pension rights so has 100% of the lifetime allowance (LTA) available to her.  She wishes to transfer her pension rights to a qualifying recognised overseas pension scheme (QROPS). 

When the transfer to the QROPS is made the standard LTA is £1 million.

There is no LTA charge due on the transfer, but it will be subject to the overseas transfer charge.  The scheme administrator will deduct the amount of the overseas transfer charge before transferring the remaining funds to the QROPS scheme manager.

As this is a transfer of uncrystallised rights and there is no LTA charge:

  • BCE 8 = £500,000
  • Amount available to transfer to QROPS= £500,000

As the overseas transfer charge is to be paid by reducing Kiki’s transfer:

  • The ‘transferred value’ = £500,000
  • The overseas transfer charge = (£500,000 @25%) = £125,000
  • Amount received by the QROPS = £500,000 – £125,000 = £375,000

LTA and overseas transfer charge due, both deducted from the member’s funds

Ivor is 55 years old and has £800,000 available LTA. In August 2017 Ivor decides to move his uncrystallised pension savings from a UK-based registered pension scheme to a QROPS.  The scheme administrator tells Ivor that his pension rights under the scheme are worth £950,000, so they can see that a lifetime allowance charge will be due.  The transfer will also be subject to the overseas transfer charge.  The scheme administrator will fund the payment of both the lifetime allowance charge and the overseas transfer charge by deducting the tax due from the amount of Ivor’s pension savings to be transferred.

Calculate BCE 8 and LTA charge

Establish the potential BCE 8 (scheme funds to be transferred) = £950,000

Establish amount of any excess over Ivor’s LTA: £950,000 - £800,000 = £150,000

Establish potential LTA charge: (£150,000 @ 25%) = £37,500

As the LTA charge is to be paid by reducing Ivor’s transfer:

  • The amount to be transferred to the QROPS = £950,000 - £37,500 = £912,500
  • BCE 8 = £912,500

Amount of BCE 8 over available LTA: = £912,500 - £800,000 = £112,000

Chargeable amount = £112,500 (basic amount) + £37,500 (scheme funded tax payment) = £150,000

LTA charge due £150,000 @ 25% = £37,500

Amount available to transfer to QROPS= £950,000- £37,500 = £912,500

Calculate the overseas transfer charge

Amount available to transfer to QROPS = £912,500

As the overseas transfer charge is to be paid by reducing Ivor’s transfer:

  • ‘Transferred value’ = £912,500
  • The overseas transfer charge = (£912,500 @25%) = £228,125

Amount received by the QROPS = £912,500 - £228,125 = £684,375

No LTA charge, transfer not reduced for overseas transfer charge

Dougal wants to transfer a pension fund of £100,000 from his UK-based registered pension scheme to a QROPS.  Dougal has not previously crystallised any pension savings so there are no lifetime allowance implications.  The transfer is subject to the overseas transfer charge, but Dougal’s scheme administrator does not deduct the tax due from his transfer.

As this is a transfer of uncrystallised rights and there is no lifetime allowance charge:

  • BCE 8 = £100,000

As the overseas transfer charge is not deducted from the funds to be transferred:

  • Taxable Value = £100,000 x 100/75 = £133,333.33
  • The overseas transfer charge = (£133,333.33 @25%) = £33,333.33

Amount received by the QROPS = £100,000

Example for non-UK registered pension scheme

Zsa Zsa is a member of a scheme that is established in Germany and the scheme is also a registered pension scheme.  As Zsa Zsa worked for some years at her employer’s UK branch she has pension savings that benefitted from UK tax relief.  Zsa Zsa’s total pension savings under the scheme are £800,000 of which £200,000 are UK-relieved funds.

Zsa Zsa wishes to transfer her savings to a QROPS and this transfer will be subject to the overseas transfer charge.  The amount of the charge is to be deducted by the scheme administrator before the funds are passed to the QROPS scheme manager.

The lifetime allowance and overseas transfer charge provisions are limited to Zsa Zsa’s UK–relieved funds.

BCE 8 = £200,000 (amount of UK-relieved funds)

Taxable value = £200,000 (amount of UK-relieved funds)

The overseas transfer charge = (£200,000 @25%) = £50,000

Amount received by the QROPS = £800,000 - £50,000 = £750,000