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HMRC internal manual

Pensions Tax Manual

Transfers: transfers to a QROPS: when the overseas transfer charge may be repaid

The overseas transfer charge can become repayable in two broad situations:

  • the overseas transfer charge was paid in error.
  • the overseas transfer charge was due and has now become repayable due to a change in circumstances.

Repayment of tax paid in error
Repayment due to a change of circumstances
How to claim a repayment due to a change of circumstances
Claims from the scheme administrator
Claims from the scheme manager
Repayment to registered pension schemes and the lifetime allowance

Repayment of tax paid in error

Section 33 and Schedule 1AB Taxes Management Act 1970

A scheme administrator, scheme manager or member may have paid the overseas transfer charge in error to HMRC.  This could be due to the scheme administrator or manager incorrectly calculating the amount of tax due.  For example, a transfer is subject to the overseas transfer charge and the amount due is £100,000, but £110,000 is paid to HMRC.  In this example £10,000 has been paid in error and may be reclaimed from HMRC.

Alternatively the scheme administrator or scheme manager may have incorrectly identified the transfer as being subject to the overseas transfer charge.  In this situation all of the tax charge has been paid in error and may be reclaimed from HMRC.

Where tax has been paid in error it is the person that paid the tax that can claim the overpaid tax back from HMRC.  HMRC will repay the overpaid tax only to the person who originally paid the tax in error.

Payment in error by scheme administrator

The scheme administrator should reclaim the overpaid tax using form APSS 242 available from Gov.UK.  After reviewing this information HMRC will repay any overpaid overseas transfer charge where they consider a repayment is due.

Any repayments are not, and cannot be treated as, contributions to the registered pension scheme.  The repayment should be used to provide the member with benefits or a transfer in accordance with the rules of the registered pension scheme.

Payment in error by scheme manager

The scheme manager should reclaim the overpaid tax using form APSS 243 available from Gov.UK.  After reviewing this information HMRC will repay any overpaid overseas transfer charge where they consider a repayment is due.

The repayment should be used to provide the member with benefits or a transfer in accordance with the rules of the overseas pension scheme.

Payment in error by the member

If the overseas transfer charge was paid in error by the member they should reclaim the overpaid tax from HMRC.  The member should have reported liability to the overseas transfer charge on their tax return.  The member should amend their tax return to show the correct amount of tax due and claim a refund in accordance with https://www.gov.uk/claim-tax-refund/you-fill-in-a-self-assessment-tax-return.

Any tax paid by the member should have been paid from their own personal funds and not from pension scheme funds.  As such a repayment to the member can be used as they wish.  This may include using the money to make a contribution to a registered pension scheme.

Repayment due to a change of circumstances

Section 244M Finance Act 2004

A repayment of the overseas transfer charge may arise because of a change of circumstances that occurs in the relevant period.  (See PTM102200 for the meaning of relevant period.)  The test is, if the circumstances had existed at the time of transfer (that was subject to the charge), would the transfer have been excluded from the overseas transfer charge.

A repayment on a change of circumstances may occur in the following situations:

  • the transfer was subject to the overseas transfer charge only because the member failed to provide the scheme administrator or scheme manager with the required information before the transfer (see PTM102900) and the member has now provided that information.
  • the member has changed their country of residence and so now meets the exclusion conditions of either (or both) section 244A (member and scheme resident in the same country) or section 244B (member and scheme both resident in the EEA); PTM102300 provides full details on these exclusion conditions
  • the QROPS is an occupational pension scheme, set up by an international organisation, or an overseas public service scheme, when the transfer was made the individual was not employed by a scheme employer, and they are now an employee of a scheme employer.  See PTM102300 for full details of how these exclusion conditions can be met.
  • sums and assets representing the transfer that was subject to the overseas transfer charge have been transferred onto another QROPS and that transfer is excluded from the tax charge.

Section 244M(3) Finance Act 2004

The right to a repayment due to a change in circumstances does not cancel the previous tax charge.  The overseas transfer charge remains due on the transfer.  If the overseas transfer charge was not paid when due, late payment penalties and interest will apply.  The repayment of the tax charge does not cancel out any late payment penalties and interest.

Section 244M(5) Finance Act 2004

Any repayment made due to a change of circumstances in not a relievable pension contribution.  A payment to the scheme administrator or scheme manager should be used to provide the member with benefits or a transfer in accordance with the rules of the pension scheme.

How to claim a repayment due to a change of circumstances

HMRC will repay the overseas transfer charge only to the person that paid the tax charge to HMRC. 

Where the tax charge has been paid from pension scheme funds by the registered scheme administrator or (former) QROPS scheme manager, HMRC will not repay the tax charge to the member.  As the tax was paid from pension scheme funds it should return to a pension scheme.

HMRC will make a repayment only after they receive a claim from the relevant taxpayer.

Section 244M(4) Finance Act 2004

A repayment to the scheme administrator is conditional on the scheme administrator having reported the transfer to HMRC in accordance with PTM103050.

A repayment to the scheme manager is conditional on the scheme manager having reported the transfer to HMRC in accordance with PTM112700.

Amount of repayment

Section 244M(2) Finance Act 2004

HMRC will repay only the amount of tax that was actually paid to them. 

For example, if the amount of overseas transfer charge due on a transfer was £25,000, but only £20,000 was actually paid, HMRC will repay only £20,000.  In addition because the overseas transfer charge was due, and continues to be due, HMRC can pursue the relevant taxpayers for interest and late payment penalties on the unpaid tax (in this example £5,000).

Claims from the scheme administrator

Regulation 14 The Registered Pension Schemes (Accounting and Assessment) Regulations 2005 – SI 2005/3454

The scheme administrator must make a repayment claim within 60 days of them becoming aware that a repayment is due.

The claim must provide the following information:

  • the member’s name, date of birth and principal residential address,
  • the date of the transfer,
  • if the overseas transfer charge arose due to a change in circumstances after the transfer, the date of the event causing the charge to arise,
  • the date on which the scheme administrator accounted for the charge on the transfer,
  • why the charge on the transfer has become repayable, and
  • the amount of repayment being claimed.

Regulations 12A(3) and 14CZA(4) to (6) The Registered Pension Schemes (Provision of Information) Regulations 2006 - SI 2006/567

When HMRC makes a repayment, the scheme administrator must:

  • tell the scheme manager of the QROPS that received the transfer about the repayment within 31 days of HMRC making the repayment, and
  • tell the member about the repayment within 90 days of that repayment.

Go to PTM103050 for details of both these reporting requirements.

Claims from the scheme manager

Regulation 3(2B) The Pension Schemes (Information Requirements for Qualifying Overseas Pension Schemes, Qualifying Recognised Overseas Pension Schemes and Corresponding Relief) Regulations 2006 – SI 2006/208

The scheme manager must tell HMRC when the overseas transfer charge becomes repayable due to a change in circumstances.

They must do this within 90 days of being told of the event that results in the overseas transfer charge now being repayable. 

The scheme manager must give HMRC the following information:

  • the fact that the overseas transfer charge is now repayable
  • the nature of the change of circumstance which leads to the charge being repayable
  • the date of the event causing the charge being repayable
  • the ‘transferred value’ of the transfer (see PTM102500)
  • the amount of the overseas transfer charge
  • whether, and to what extent, they have accounted for, or intend to account for, the tax charge, and
  • the value of the member’s relevant transfer fund and ring-fenced transfer fund(s) that remain after the event.

Regulation 3AL The Pension Schemes (Information Requirements for Qualifying Overseas Pension Schemes, Qualifying Recognised Overseas Pension Schemes and Corresponding Relief) Regulations 2006 – SI 2006/208

The scheme manager can make a repayment claim up to 12 months after the end of the relevant period for the transfer (see PTM102200).

The claim must be in writing and provide the following information:

  • the member’s name, date of birth and principal residential address,
  • the date of the transfer,
  • if the overseas transfer charge arose due to a change in circumstances after the transfer, the date of the event causing the charge to arise,
  • the date on which the scheme manager accounted for the charge on the transfer,
  • why the charge on the transfer has become repayable, and
  • the amount of repayment being claimed.

Telling the member if a repayment of the overseas transfer charge is due

Regulation 3AG(4) The Pension Schemes (Information Requirements for Qualifying Overseas Pension Schemes, Qualifying Recognised Overseas Pension Schemes and Corresponding Relief) Regulations 2006 – SI 2006/208

Where the overseas transfer charge becomes repayable, the scheme manager must give the member a notice about this within 90 days after the date of being notified of the event causing the overseas transfer charge to be repayable.  The notice must include the following information:

  • the amount of the overseas transfer charge
  • if, and to what extent, the scheme manager has accounted for, or intends to account for, the tax to HMRC, and
  • where the scheme manager has already accounted for the tax to HMRC, the date they paid the tax.

Repayment to registered pension schemes and the lifetime allowance

Paragraph 2A Schedule 32 Finance Act 2004

A recognised transfer from a registered pension scheme to a qualifying recognised overseas pension scheme (QROPS) before the member’s 75th birthday is a BCE 8.  The amount crystallising under a BCE 8 is calculated before any reduction for the overseas transfer charge.

When an overseas transfer charge is repaid to a registered pension scheme a further BCE can occur in respect of that repayment where, for example, the funds are used to provide benefits or are transferred to a QROPS.  Paragraph 2A Schedule 32 Finance Act 2004 acts to counter the effect of a BCE occurring more than once in respect of the same funds.  It does this by reducing the amount crystallising. This can happen whether the repayment arose due to:

  • a change in circumstances, or
  • the tax charge being paid in error.

Where HMRC repays the overseas transfer charge to a registered pension scheme administrator, the value of the amount crystallising under a BCE in respect of the member will be adjusted if the BCE occurs:

  • after the overseas transfer charge has been repaid, and
  • under a ‘benefited scheme’, that is either the scheme that received the repayment of the tax charge, or a scheme that has received a recognised transfer of sums and assets that represents the repaid overseas transfer charge.

Amount of the reduction to the BCE

Where the BCE is the first BCE under a ‘benefited scheme’ the amount crystallising is reduced by the amount of the repaid overseas transfer charge, but not below nil.

If the amount of the repaid overseas transfer charge is more than the amount of the BCE (before the reduction), the excess repayment can be set against future BCEs that occur in respect of the member under a benefited scheme.

Example 1

Ivor transferred his pension rights from his registered pension scheme (UK Pension Plan) to a QROPS.  The amount of the BCE 8 was £400,000 and Ivor’s scheme administrator paid £100,000 overseas transfer charge to HMRC.

The overseas transfer charge later became repayable and HMRC repaid £100,000 to the scheme administrator of UK Pension Plan.  That amount should be used to provide Ivor with benefits in accordance with the rules of that scheme.  Ivor decides that rather than taking benefits under UK Pension Plan he will transfer the funds to the QROPS.  This transfer will be a BCE 8 and without any adjustment the crystallised amount is £100,000. 

UK Pension Plan is a benefited scheme and so the amount of the BCE is reduced by the amount of the repaid overseas transfer charge.   As a result the amount of the BCE 8 is £0 (£100,000 - £100,000).

Example 2

Penelope is a member of two registered pension schemes (RPS 1 and RPS 2).  Penelope decided to transfer her pension rights under RPS 1 to a QROPS (QROPS A).  The amount of the BCE 8 was £700,000 and, thinking that the overseas transfer charge was due, the RPS 1 scheme administrator paid £175,000 overseas transfer charge to HMRC.

However, the overseas transfer charge wasn’t in fact due and RPS 1 had paid the tax in error.  The scheme administrator of RPS 1 claims the tax back and HMRC repays £175,000 to RPS 1.  This amount should now be used to provide benefits for Penelope in accordance with the rules of RPS 1.

Penelope has £300,000 under RPS 2.  She decides to take an uncrystallised funds pension lump sum (UFPLS) of £200,000.  The UFPLS was paid after HMRC repaid the £175,000 overseas transfer charge to RPS 1.

The payment of an UFPLS is a BCE 6 and the amount crystallised is £200,000.  Although the UFPLS was paid after the overseas transfer charge was repaid the amount of the BCE 6 is not reduced.  This is because RPS 2 is not a benefited scheme; it does not contain sums and assets that represent the repaid overseas transfer charge.

Rather than take benefits under RPS 1 Penelope transfers her remaining funds to RPS 2.  As a result of this transfer RPS 2 now contains sums and assets representing the repaid overseas transfer charge.  RPS 2 is now a benefited scheme. 

Penelope decides to take 25% of her remaining funds under RPS 2 (now valued at £300,000) as a £75,000 pension commencement lump sum and designate the remaining £225,000 into drawdown.  This is a BCE 6 of £75,000 and a BCE 1 of £225,000.  However, as RPS 2 is a benefited scheme the amount crystallising is reduced to take account of the repaid overseas transfer charge.

The BCE 6 occurs first and, in accordance with paragraph 2A Schedule 32, the amount crystallised is adjusted as follows:

Unadjusted BCE 6 value (£75,000) - amount of repaid overseas transfer charge tax (£175,000)

As the BCE value cannot be less than nil:

  • the amount of the BCE 6 is £0, and
  • £100,000 remains to be set against future BCEs under RPS 2.

The BCE 1 occurs next and the amount crystallised is adjusted as follows:

Unadjusted BCE 1 value (£225,000) – remaining amount of repaid charge (£100,000) = £125,000

The amount of the BCE 1 is £125,000 and there is no remaining repaid overseas transfer charge to be set against future BCEs.