Government acts to restrict QROPS transfers
The recent Spring budget heralded further restrictions for QROPS transfers.
The headline measure is to place a 25% tax charge on a QROPS transfer, where a member asks for a transfer on or after 9 March this year.
The new rules do contain some exemptions from the 25% charge, though. The exemptions are aimed at allowing a member to take a UK pension fund with them to a new country when they relocate overseas.
So, a QROPS transfer is exempt from the 25% charge if the member and the QROPS are in the same country. And, similarly, a QROPS transfer is exempt from the 25% charge if the QROPS is a scheme run by the member's employer.
The 25% charge is likely to discourage a significant number of QROPS transfers which are made simply for wealth management purposes.
The new tax rules do not stop there. A 25% charge can apply to an onward transfer from a QROPS to another QROPS within five years of an original transfer into the first QROPS.
The new tax rules also extend UK taxing provisions to payments out of a QROPS from transferred funds within five years of a transfer.
An existing QROPS itself has to provide a further undertaking to HMRC by 13 April in relation to the new tax charges. No doubt, QROPS providers around the world are scrambling to give this undertaking to HMRC. If they do not, the QROPS in question will automatically cease to be a QROPS. There is no right of appeal. This will probably catch a few providers out meaning that their QROPS is no longer a QROPS and they lose that business.
Back home, for those of us who advise UK schemes on transfer requests out to a QROPS, the undertaking joins an already long list of due diligence material which UK schemes need to ask for.