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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 QROPS or former QROPS

Glossary PTM000001
   

Example 1: tax on transfer, scheme manager deducts tax
Example 2: tax on transfer, scheme manager doesn’t deduct tax
Example 3: tax on change of circumstances

Example 1: tax on transfer, scheme manager deducts tax

Hugh is a member of the Fiery QROPS.  Under this scheme Hugh has £390,000 held under ring-fenced transfer funds as follows:

  • £200,000 ring-fenced transfer fund with a key date of 30 June 2017
  • £110,000 ring-fenced transfer fund with a key date of 13 July 2018, this was subject to the overseas transfer charge when it was transferred to the Fiery QROPS
  • £80,000 ring-fenced transfer fund with a key date of 14 September 2018

In October 2023 Hugh transfers all his funds from the Fiery QROPS to the Smokeless QROPS.  This transfer is subject to the overseas transfer charge.

At this point, Hugh’s pension funds under Fiery QROPS are valued at £570,000. 

The overseas transfer charge does not apply to funds transferred out of a QROPS or former QROPS that are not held under a ring-fenced transfer fund.  Hugh’s ring-fenced transfer funds have a total value of £390,000.

The overseas transfer charge does not apply to an onward transfer made after the end of the relevant period for the ring-fenced transfer fund. 

The relevant period for the £200,000 ring-fenced fund with a key date of 30 June 2017 ended on 5 April 2023. So the onward transfer of this ring-fenced transfer fund is out of scope of the tax charge.

The relevant period for the other two ring-fenced transfer funds ends on 5 April 2024.  This is after the date of the transfer to the Smokeless QROPS and so there are two ring-fenced transfer funds with a total value of £190,000 still within scope of the tax charge.

However the overseas transfer charge was paid previously in respect of the £110,000 ring-fenced transfer fund.  The tax charge has not become repayable.  This means that the onward transfer of this ring-fenced transfer fund is excluded from the ring-fenced transfer charge.

This leaves the onward transfer of the £80,000 ring-fenced transfer fund being subject to the overseas transfer charge.

The scheme manager of Fiery QROPS decides to deduct the tax due before paying the balance to the scheme manager of Smokeless QROPS.

The amount of the onward transfer subject to the charge = £80,000.

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

  • The ‘transferred value’ = £80,000
  • The overseas transfer charge = (£80,000 @25%) = £20,000

Amount received by the QROPS = £570,000 – £20,000 = £550,000

Example 2: tax on transfer, scheme manager doesn’t deduct tax

Pugh is also a member of the Trump QROPS.  Pugh has pension savings worth £620,000 under the Trump QROPS which includes the following UK funds

  • £50,000 UK tax-relieved fund
  • £200,000 relevant transfer fund
  • £330,000 ring-fenced transfer fund with a key date of 27 November 2017.

Pugh transfers all his benefits under the Trump QROPS (£620,000) to the Top QROPS.  This transfer does not meet any of the five general exclusion tests, so is subject to the overseas transfer charge.

As the overseas transfer charge on an onward transfer from a QROPS (or former QROPS) is limited to the transfer of a ring-fenced transfer fund, only £330,000 is within scope of the charge.

Pugh’s onward transfer takes place within the relevant period for the ring-fenced transfer fund, so the onward transfer is within scope of the charge.

The transfer into the Trump QROPS was requested after 9 March 2017 so the ring-fenced transfer fund is not classed as pre-9 March 2017 funds.

The transfer into the Trumps QROPS was excluded from the overseas transfer charge, so the tax charge hasn’t been paid previously.

In short there are no grounds for excluding the onward transfer of the ring-fenced transfer fund (£330,000) from the overseas transfer charge.

The amount of the requested onward transfer within scope of the charge = £330,000.

The Trump QROPS scheme manager does not deduct the tax due from the funds to be transferred so the taxable value of the onward transfer is grossed up.

Taxable Value = £330,000 x 100/75 = £440,000

The overseas transfer charge = (£440,000 @25%) = £110,000

Amount received by the QROPS = £620,000

Example 3: tax on change of circumstances

In December 2017 Barney transferred £400,000 from the Candle Pension Scheme to the Wicks QROPS.  The Wicks QROPS is established in Malta.  The QROPS is not employment-related.  When Barney transferred he was resident in the UK and so the transfer was excluded from the overseas transfer charge on the basis that the QROPS was established in an EEA country and Barney was also resident in the EEA.

In October 2022 Barney moves to Australia to take up a new job.  He ceases being UK resident from this point.

The relevant period for the transfer from the Candle QROPS runs up to 5 April 2023.  As Barney ceased being resident in October 2022, before the end of the relevant period, the overseas transfer charge is now due.

The only funds Barney has under the Wicks QROPS derive from the transfer from his registered pension scheme.  When Barney leaves the UK his QROPS funds have risen in value to £480,000.

As the overseas transfer charge has arisen due to a change of circumstances the ‘transferred value’ is limited to the amount of the ring-fenced transfer fund created by the transfer from the Candle Pension Scheme.  That is £400,000.

The ‘transferred value’ = £400,000

The overseas transfer charge = (£400,000 @25%) = £100,000

The scheme manager of Wicks QROPS and Barney are jointly liable to the £100,000 overseas transfer charge.