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HMRC internal manual

Pensions Tax Manual

International: qualifying recognised overseas pension schemes (QROPS): introduction

Glossary PTM000001

This page has not been updated for Finance Bill 2017 changes

The QROPS regime

HMRC has published a number of statements on qualifying recognised overseas pension schemes (QROPS). The main ones are set out below.

Purpose of the QROPS regime
Tax treatment of QROPS

Purpose of the QROPS regime

The text below is drawn from an official statement from HMRC dated 6 December 2011.

What is a QROPS

A qualifying recognised overseas pension scheme (QROPS) is a pension scheme established outside the UK that is broadly similar to a UK registered pension scheme.

The criteria for what makes a foreign pension scheme similar to a UK registered pension scheme for the purposes of a transfer are set out in UK legislation. Schemes that notify HMRC that they meet the conditions and undertake to provide information to HMRC are ‘QROPS’.

The purpose of the conditions is to ensure that the scheme is treated as a pension scheme for regulatory and tax purposes in the country in which it is established. It should be treated in the way that is usual for pension schemes in that country to be treated, particularly for members of the scheme who are resident there.

Transfers to QROPS

This page has not been updated for the overseas transfer charge introduced by Finance Bill 2017.  See GOV.UK for guidance on the new tax charge.

The Government provides generous tax relief on pension savings in UK registered pension schemes. When an individual transfers their UK pension savings that have benefitted from those generous tax reliefs to another registered pension scheme or to a QROPS the transfer can be made free of UK tax (where it does not exceed the lifetime allowance).

The Government allows transfers to QROPS to be made free of UK tax because they enable people permanently leaving the UK to simplify their affairs by taking their pension savings with them to their new country of residence. This is intended to enable them to continue to save to provide an income when they retire.

An individual who leaves the UK and transfers their pension savings should be in broadly the same position as someone who remains in the UK with their pension savings.

The Government found that QROPS were being marketed extensively as a way of paying amounts or enabling the payment of amounts that are not allowed under UK rules (in particular 100% lump sums) once the UK tax rules no longer apply.

This is contrary to the policy rationale for allowing transfers of UK tax-relieved pension savings to be made free of UK tax to QROPS.

What the Government expects

The Government expects that individuals will:

  • use the QROPS regime to transfer their pension savings where they leave, or intend to leave the UK permanently so that they can continue to save to provide an income when they retire,
  • be aware that UK tax rules continue to apply to pension savings transferred from a UK pension scheme and that UK tax charges can arise in relation to the transfer; and
  • engage with HMRC where necessary and pay any tax charges that arise

The Government expects that QROPS will:

  • ensure they meet the conditions to be a QROPS before notifying HMRC,
  • ensure they continue to meet the conditions when they are accepting transfers from UK registered pension schemes, and
  • provide information required and engage with HMRC where necessary.

Government action

The changes from 6 April 2012 are intended to make the QROPS regime operate in line with the policy intention. The Government will continue to keep the QROPS system under review to ensure that it is used in a manner consistent with the principle for which tax relief on pensions is provided.

Paragraph 7.8 of the Explanatory Memorandum to Statutory Instrument 2012/1221

On 21 March 2012, the Government announced in the Budget Report that ‘where the country or territory in which a QROPS is established makes legislation or otherwise creates or uses a pension scheme to provide tax advantages that are not intended to be available under the QROPS rules, the Government will act so that the relevant types of pension scheme in those countries or territories will be excluded from being QROPS.’

In November 2013 HMRC published a further statement which set out how HMRC would treat transfers made to schemes that are not QROPS but appeared on the published list of schemes that notified HMRC that they are QROPS. A copy of the statement can be found at….

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Tax treatment of QROPS

This page has not been updated for the overseas transfer charge introduced by Finance Bill 2017.  See GOV.UK for guidance on the new tax charge.

An individual can be subject to UK tax charges in relation to QROPS in two circumstances:

  • where a transfer is made from a registered pension schemes to a pension scheme established outside the UK that is not a QROPS (or a registered pension scheme) - this will be an ‘unauthorised payment’
  • where a payment is made from the QROPS where the ‘member payment charges’ apply - this is usually where the payment would have been taxable as a lump sum or an ‘unauthorised payment’ if paid from a registered pension scheme.

Member payment charges

This section has not been updated to reflect the extended application of the member payment charges introduced by Finance Bill 2017.

Schedule 34 Finance Act 2004

Payments from a QROPS can be liable to UK tax charges even if the member is not UK resident when the payment is made. Future payments from the QROPS may give rise to member payment charges if the member:

  • is resident in the United Kingdom when the payment is made (or treated as made), or
  • has been resident in the United Kingdom earlier in the tax year in which the payment is made (or treated as made) or in any of the five tax years immediately preceding that tax year.

Guidance on what the member payment charges are, when they arise and what tax is due is at PTM113200.

Unauthorised payment charges on taxable property

Paragraph 7A Schedule 34 Finance Act 2004

Aside from the route via the member payment charges, unauthorised payments may also arise on taxable property acquired or present in a QROPS. In such a case the tax charges will apply whether or not the individual is resident in the UK. There is no time limit on the charges related to when the individual was resident in the UK as there is with the member payment charges.

This means that if the fund in a QROPS that relates to funds that have received UK tax relief invests in residential property, UK tax charges will apply. They are payable by the individual member.

Effect on scheme income and investments

It is important to remember that QROPS status does not confer a scheme with the same combination of UK tax exemptions that a registered pension scheme enjoys. In particular, it does not affect the pension scheme’s liability to UK tax on any UK property income.

If a QROPS invests in an unauthorised unit trust any gains accruing to that unit trust remain chargeable if the overseas scheme is exempt from capital gains tax or corporation tax on such gains only by reason of its residence.