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HMRC internal manual

Pensions Tax Manual

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

Glossary PTM000001

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

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

Effect on scheme income and investments

It is important to remember that QROPS status does not give a scheme the same combination of UK tax exemptions that a registered pension scheme enjoys.  In particular, it does give entitlement to relief from UK tax on scheme investment income.  A scheme may be able to claim relief on investment income in accordance with a double taxation agreement – see INTM336000.  However no relief is due on sources of income that are not covered by a double taxation agreement, for example 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.

As QROPS status doesn’t affect the taxation of investment income, any questions as to the tax treatment of UK investments held by a QROPS should be directed to the area of HMRC with responsibility for the particular type of investment income.

The overseas transfer charge

Sections 244A to 244N Finance Act 2004

A transfer from a registered pension scheme to a QROPS that was requested after 8 March 2017 will be subject to the overseas transfer charge if:

  • the member has not given the scheme administrator the required prescribed information before the transfer is made (see PTM102900), or
  • none of the five exclusion conditions set out at PTM102300 are met.

A transfer from a QROPS (or former QROPS) to another QROPS may also be subject to the overseas transfer charge in similar circumstances.

Go to PTM102200 to find out more about when the overseas transfer charge arises on a transfer to a QROPS.

If a transfer was not subject to the overseas transfer charge when it was made, it can still become subject to the charge if circumstances change within the ‘relevant period’ (see PTM102200 for definition).  PTM102400 provides more information on when the overseas transfer charge arises due to a change of circumstances after the transfer.

The QROPS scheme manager will be jointly liable with the member to pay the overseas transfer charge when the charge arises:

  • on a transfer from their scheme, or
  • due to a change of circumstances after the transfer has been made to their scheme.

Tax on pension payments

Chapter 4 Part 9 Income Tax (Earnings and Pensions) Act 2003

Any pension paid from the QROPS will be taxable if the member is UK resident when they receive the pension.

Section 576A Income Tax (Earnings and Pensions) Act 2003

If the member is receiving one or more of the following types of pension when they are temporarily non-UK resident, the pension may be taxed when the member returns to the UK: 

  • Drawdown pension (as member, dependant, nominee or successor),
  • Flexible annuity, or
  • Scheme pension from a scheme which is paying a scheme pension to fewer than 12 people.

Tax on lump sum payments

Section 574A Income Tax (Earnings and Pensions) Act 2003

To the extent that a lump sum payment is outside the scope of the member payment provisions, lump sums paid to UK residents may be taxed as pension income.

Member payment charges

Paragraphs 1 to 7 Schedule 34 Finance Act 2004

Payments from a QROPS can be subject to UK tax charges even if the member is not UK resident when the payment is made.

Certain tax charges known as the member payment charges can apply up to the later of:

  • 10 full tax years following the tax year in which the member left the UK, and
  • five years from the date the transfer was made to the QROPS.

The member payment charges include the tax charges applied to unauthorised payments and the tax due on uncrystallised funds pension lump sums.

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

PTM113220 provides more information on the taxable property unauthorised payments charge.