Transfers: transfers to a QROPS: scheme administrator actions - before the transfer
Tell the member the information they need to give to the scheme
Regulation 11BA(4) Registered Pension Schemes (Provision of Information) Regulations 2006 - SI 2006/567
PTM102900 sets out the details members should pass to the scheme administrator before the transfer is made. The scheme administrator should tell the member about these requirements within 30 days of the member’s transfer request.
Is the scheme a QROPS?
Before making a transfer to a qualifying recognised overseas pension scheme (QROPS), the scheme administrator should carry out due diligence checks to ensure that the scheme receiving the transfer is a QROPS. If the receiving scheme is not a QROPS any transfer will be an unauthorised payment. The scheme administrator will be liable to the scheme sanction charge and the member will be liable to the unauthorised payments charge (and surcharge) on the transfer.
HMRC cannot provide a checklist of these requirements. The questions and checks required will vary depending on the facts and circumstances of each individual transfer.
HMRC cannot confirm whether or not any individual transfer will, or will not, be an unauthorised payment and cannot guarantee that a transfer will not be subject to the scheme sanction charge.
Whether or not a scheme meets the conditions to be a recognised overseas pension scheme depends on both the scheme design and the legislation of the country in which the scheme is established. Both of these factors can change at any time so that a scheme may stop or start being capable of meeting the QROPS conditions at any time.
For this reason HMRC does not provide a list of countries that can ‘host’ a QROPS. Such a list would be misleading because:
- even if the legislation of the host country could support a QROPS, the design of the scheme may be such that it does not satisfy the conditions to be a recognised overseas pension scheme, and
- HMRC cannot have current knowledge of the tax and pensions legislation, which may change at any time without notice, for every country or territory in the world.
However, HMRC can confirm that, if a country does not have a system of taxation of an individual’s personal income, pension schemes based there cannot be a QROPS.
Where a scheme administrator becomes liable to the scheme sanction charge they can apply to be discharged from it as set out at PTM135400. In applying for any discharge from the scheme sanction charge scheme administrators need to prove to HMRC that they took reasonable care in establishing the correct position before making the transfer.
What constitutes ‘reasonable care’ will vary depending on the individual facts and circumstances of each case. This does not mean that scheme administrators need to ask for evidence of compliance with every one of the conditions to be a recognised overseas pension scheme. Scheme administrators may choose to risk assess the level and detail of required due diligence checks.
Scheme administrators will need to keep all appropriate records as evidence of all the due diligence checks they have undertaken.
In exercising reasonable care HMRC expects scheme administrators to:
- ensure the member has provided the prescribed required information and written acknowledgement - see PTM102900, and
- no more than one day before making the transfer, checking the published list of schemes that have notified that their scheme meet the conditions to be a recognised overseas pension scheme. Scheme administrators should ensure that the scheme details provided to them with the transfer request match the details on the published list. PTM112400 explains how this published list works and why a scheme may not be included in the published list. The scheme administrator should keep a printout of the page from the published list from the day before the transfer (and also retain a copy of the QROPS reference letter if this has also been obtained).
HMRC understands that scheme administrators depend on the information provided by members and the QROPS scheme managers. However scheme administrators are responsible for considering the information provided and, where appropriate, should ask further questions to establish the exact position, and to check on any inconsistencies or unusual situations, such as (but not limited to):
- where the bank account to which the transfer is to be made is not in the same country as that in which the pension scheme is established
- where the bank account to which the transfer is to be made is not in the name of the pension scheme which will receive the transfer
- where the representative person of the receiving scheme that the scheme administrator is corresponding with regarding the transfer is not based in the same country as the receiving scheme
- that the person the scheme administrator is corresponding with regarding the transfer is not a representative of the pension scheme but, for example, a financial adviser, or they are asked to act through a third party.
Whilst HMRC considers these to be generally indicative that the scheme is not a recognised overseas pension scheme and/or is being used as a liberation vehicle, there may be genuine reasons why these circumstances arise. An explanation should be sought and considered critically. The fact that other scheme administrators have sent transfers to a scheme is not a satisfactory explanation and is not evidence that a scheme is a QROPS.
This is not an exhaustive list and scheme administrators should not take it that these are the only checks that are required. Carrying out only these checks cannot be relied upon as protection from liability to the scheme sanction charge.
Any genuine pension scheme should be able and willing to provide details of their scheme, e.g. scheme rules and membership booklets, and proof of their regulatory and tax status. QROPS scheme managers should be able to explain how the tax and any regulatory rules for their country apply to their scheme, just as scheme administrators will be able to explain how UK tax and pension regulation rules apply to their registered pension scheme.
If a scheme manager is reluctant to provide such information this should be questioned; HMRC does not expect this behaviour from a genuine scheme manager of a genuine recognised overseas pension scheme.
Lifetime allowance test
As the transfer to a QROPS is a BCE 8 the scheme administrator needs to establish whether or not a lifetime allowance charge arises as a result of the transfer. The scheme administrator may ask the member for more information to work out if tax is due and, if so, how much. Any lifetime allowance charge due is normally deducted from the amount of the transfer (as the scheme administrator is jointly and severally liable with the member to the tax charge).
As explained at PTM102500, the calculation of the amount of the BCE 8 and the amount of any lifetime allowance charge is carried out before the calculation of any overseas transfer charge. PTM088690 provides guidance on the calculation of BCE 8 and PTM102530 provides examples of the calculation of the BCE 8 and the overseas transfer charge.
Is the transfer subject to the overseas transfer charge
Regulation 11BA Registered Pension Schemes (Provision of Information) Regulations 2006 - SI 2006/567
Sections 244A to 244G and 244I Finance Act 2004
A transfer to a QROPS may be subject to the overseas transfer charge. PTM102200 provides guidance on the overseas transfer charge and PTM102300 provides guidance on the circumstances when a transfer may be excluded from the charge.
If the member has provided all the information they are required to give under the legislation (see PTM102900), scheme administrators should have the information they need to work out if the transfer is subject to the overseas transfer charge. The information required to be provided by the member is designed to enable scheme administrators to identify if a transfer is chargeable.
If the member has not given all the prescribed information in accordance with PTM102900, the transfer will be subject to the overseas transfer charge, unless it was requested before 9 March 2017.
Questions scheme administrator will need to ask themselves to work out if the transfer is taxable include:
- When was the transfer requested, was it before 9 March 2017?
- Where is the member resident?
- In which country is the QROPS established?
- Is the scheme set up by an international organisation (see PTM112200 for definition) of which the member is an employee?
- Is the scheme an overseas public service pension scheme (see PTM102300 for definition) and the member an employee of a public service employer?
- Is the scheme an occupational pension scheme and, if so, is the member an employee of a sponsoring employer of that scheme under a genuine employment?
Note - this is an indicative list, not a full list of possible check questions. It cannot be relied upon as protection from liability to the overseas transfer charge.
If the basis of the transfer allegedly not being subject to the overseas transfer charge is due to the nature of the pension scheme and the member’s employment status, HMRC expects scheme administrators to consider critically the information provided by the member. Where due care has not been taken in establishing the correct position of the transfer, HMRC will not discharge the scheme administrator from liability to the overseas transfer charge as explained at PTM102700.
For example, if
- the member states that the transfer is to an overseas occupational pension scheme and they are an employee of a sponsoring employer of that scheme, but
- according to existing information, that person is an employee of another employer
HMRC expects scheme administrators to make further enquires to be made to determine the true situation. Scheme administrators will need to satisfy themselves that the alleged overseas employment is genuine, and not a sham to attempt to avoid the overseas transfer charge.