close menu

British expats to take on 25% tax on pension transfers

by Mike Abbott | Mar 23, 2017
  • Britons living outside of the UK will now face a hefty tax when transferring their pensions outside of the UK as HM Revenue & Customs (HMRC) have made important changes to the tax laws around qualifying recognised overseas pension schemes (QROPS). The Chancellor of the Exchequer, Philip Hammond, announced that transfers to certain QROPS will be taxed at 25% in his Budget Speech on 8 March 2017. This change will affect thousands of British expats living outside of the UK.
    one hand giving a dollar to an arm with a hand holding a pound

    What are QROPS?

    These are schemes that are able to receive transfers from UK pensions, given that they meet certain requirements as set out by HMRC. Many UK expats were advised to offshore their pension through a QROPS to reduce their tax exposure, but was often the result of poor advice and an inaccurate assessment of the tax environment.

    Historically, we have done very few QROPS as they increase the cost of the pension with little or no change to the tax treatment.

    With the introduction of this new tax, HMRC are trying to put a stop to the practice of moving UK pensions out of the country and into offshore locations where the British citizen is not resident.

    Who will it affect and how?

    The strict rule change reflects the government’s objective of promoting fairness in the tax system.

    Anyone who requests an overseas pension transfer on or after 9 March 2017 will be affected. The transfer will have a tax levy of 25%, which will be deducted before it takes place.

    To add to this, payments out of QROPS where funds are transferred on or after 6 April 2017 will be subject to UK tax laws for five tax years following the transfer.

    However, people making legitimate QROPS transfers, such as when someone returns to their home country, are not subject to the new tax.  

    It will still allow people leaving the UK to take pensions savings that have had UK tax relief with them to their new country of residence.

    Also, where the transferor and their pension savings are in the same country, or are both in the EEA, or the QROPS is an occupational pension scheme provided by the person’s employer, the pension will not be subject to the taxation.

    Little change for Australian and New Zealand schemes

    Antipodean schemes would not be subject to the tax. While this is a welcome exception, Australian schemes are already subject to the UK’s Pension Age test, making few transfers possible at present.

    They would still fall under the five-year tax rule on all transfers falling on or after 6 April.

    Stronger effect on South African schemes

    The change will bring about less favourable conditions for South Africans and UK expats living in South Africa.

    Transferring to a QROPS in South Africa would class it as a retirement annuity with local providers. This would be more expensive and make it subject to local regulations and investment restrictions. It will also remove the portability of the pensions of South Africans who may wish to emigrate in the future.

    Non-UK licensed offshore independent financial advisers operating in South Africa will not be able to access UK onshore providers. The only option will be to transfer to self-invested personal pensions (SIPPs) offered by QROPS providers, making the transaction considerably more expensive.

    Talk to a financial adviser

    If you are planning on making an overseas pension transfer, we recommend speaking to someone who understands the tax landscape in both locations.

    As dual-licensed authorised advisers for the UK and South Africa, we are ideally placed to advise on both sides. We can assist with advice on UK pension transfer options as well as the tax-planning to ensure you get the best return on your investment.

    If you’re considering a QROPS, or looking to diversify and grow your investments, speak to one of our financial advisers about our services. Give us a call on +27 (21) 657 1540 in South Africa or +44 (0) 20 7759 7519 in the UK, or send us an email and we’ll get back to you.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

    • Home Model
      4 things first-time homebuyers should do
      Aug 20, 2019  |  by Neil Ambrose
    • Property with price tage
      It’s a great time to buy your first UK property – here’s why
      Jun 03, 2019  |  by Marlon Borez
    • Handing over house keys
      Contractor mortgages: What you need to know for a successful application
      May 31, 2019  |  by Ian Henning
    • House rent protection
      Rental guarantees: What lenders think about rent protection schemes
      Apr 24, 2019  |  by Bill Monty
    • blended-families
      How “yours, mine and ours” complicates the estate planning process: Advice for blended families
      Apr 17, 2019  |  by Sherron Alexander-Bedingfield
    • Mortgage Concept
      The perfect time to secure a better interest rate on your remortgage
      Apr 03, 2019  |  by Ian Henning
    • growing tree
      The boom behind ESG investing – what’s actually driving the demand
      Mar 26, 2019  |  by Mike Abbott
    • Lightbulb working
      South Africa’s Retail Distribution Review – slow but important changes for investors and advisors
      Mar 05, 2019  |  by Mike Abbott
    • English-house
      Common mistakes that first-time homebuyers make
      Dec 06, 2018  |  by Ian Henning
    • Man-on-a-rocket
      Are you a UK contractor? Maximise tax-efficiency by using your pension
      Sep 25, 2018  |  by Bill Monty
     
     

    South Africa

    Cape Town

    Regent Square
    Doncaster Road
    Kenilworth 7708 +27 (0) 21 657 2120

    Durban

    25 Richefond Circle
    Ridgeside
    Umhlanga 4320 +27 (0) 31 536 8843

    United Kingdom

    Croydon

    One Croydon
    12-16 Addiscombe Road
    Croydon CR0 0XT +44 (0) 20 7759 7514

    Australia

    Melbourne

    9 Yarra Street
    South Yarra
    VIC 3141 +613 (0) 8651 4500

    Sable International is a trading name of 1st Contact Money Limited (company number 07070528), registered in England and Wales. We are authorised and regulated by the Financial Conduct Authority in the UK (FCA no. 517570), the Financial Services Conduct Authority in South Africa (1st Contact Money [PTY] Ltd - FSP no. 41900) and hold an Australian Financial Services Licence issued by ASIC to deal in foreign exchange (1st Contact Group - AFS Licence number 335 126).

    We use cookies to provide the best website experience for you. Using this website means that you agree to this. How we use cookies.