A closer look at the Overseas Transfer Charge and the implications after Brexit. In March 2017 the UK Government introduced a new rule which applied to any UK pension transfer to a ROPS (Recognised Overseas Pension Scheme). Known as the Overseas Transfer Charge (OTC), the objective was to stop pension holders from transferring UK pensions out of the UK and withdrawing at a zero tax rate. In essence, a legal way of avoiding tax.
Within this article, we take a closer look at the details and what it means for your pension, specifically, focussing on ROPS.
What is the Overseas Transfer Charge?
The Overseas Transfer Charge is a flat rate of 25% of the total value of your pension at the time of transfer.
What qualifies as a ROPS transfer?
Transferring any UK pension scheme (this includes a personal pension such as a SIPP, a Defined Contribution scheme (money purchase) and a Defined Benefit (DB) scheme (protected rights) out of the UK to another recognised scheme. A list of ROPS providers, per country, that meet the conditions set out by the HMRC can be found here.
Why use a ROPS?
Key benefits of a ROPS include:
- Succession planning – There is no UK IHT
- Mitigating unnecessary tax for large value pensions – No Lifetime Allowance (LTA) Limit
- Receive monies gross from the pension scheme due to DTA with 60 countries
- Invest and withdraw in any major currency
- Consolidate two or more pensions into one scheme
More information on the pros and cons of ROPS can be found here.
When does the OTC not apply?
The Overseas Transfer Charge (OTC) is not applied under the following circumstances:
- You are resident in the same country in which the ROPS is established.
- You are resident in a country within the European Economic Area (EEA) and the ROPS is established within the EEA. A full list of which can be found here.
Overseas Transfer Charge 10-Year Rule
The OTC is essentially in play for ten years. This means if you are to relocate outside of the EEA then the 25% OTC can be applied. Ten years is defined as ten full tax years from the date you transferred your pension scheme. If you relocate countries then you are required to inform your ROPS provider within 60 days.
Overseas Transfer Charge (OTC) after Brexit
With the UK leaving the EU and EEA it has created a potential liability when utilising a ROPS. Theoretically, an Overseas Transfer Charge could be applied to any transfer to a ROPS. As it stands, HMRC has not implemented this and transfer can proceed as usual. It is however a fluid situation and we watch closely for any changes to this.