Transfer UK Pensions to QROPS and get hit by 25% Tax Charge?
–but does this really apply to you?
My recent meetings with clients have largely revolved around how to transfer UK pensions to QROPS (Qualifying Recognised Overseas Pensions). Without exception, all of my new clients have been wary to discuss if they should transfer UK pensions to QROPS with a Financial Adviser in Spain because of headlines like the one above (Financial Times – March 10, 2017).
So, scary headlines aside, is there really anything to be concerned about if you transfer UK pensions to QROPS or SIPPS (Self Invested Personal Pensions) and are you going to be clobbered with a 25% tax bill? Well, in reality, for most of us Expats living in Spain the simple answer is no. As always, the devil is in the detail not in the headlines even from such an august publication as the FT.
Checking the legislation on a transfer of UK pensions overseas gives a completely different, and much less dramatic story (shock headlines and horror stories sell papers) for us EU Expats living in Spain. The reality is as follows:
The Overseas Transfer Charge (OTC) of 25% does not apply if you transfer UK pensions to QROPS under the following circumstances:
- If the transfer request was before 8/3/17.
Or if any one of the following 5 conditions apply:
- The Member (you) is tax resident in the country in which the QROPS is established.
- The Member is tax resident in the European Economic Area and the QROPS is established in the European Economic Area.
- The QROPS is an Occupational Scheme and the member is an employee of the sponsoring employer under the scheme.
- The QROPS is a Public-Sector scheme and the member is an employee of a sponsoring employer under the scheme.
- The QROPS is set up by an International Organisation and the member is an employee of a sponsoring employer under the scheme.
Condition 2 is highlighted as this probably applies to the majority of my clients, for example:
When discussing moving a pension for UK or other European Economic Area citizens who have moved to enjoy the lifestyle offered by Spain (also EEA), the most likely jurisdictions to transfer UK pensions to QROPS are Malta or Gibraltar (both EEA). Of course, Gibraltar as a Crown Dependency of the UK may be out of the frame when the UK exits the EU. Leaving Malta the clear choice for most UK Expat, Spanish Tax Resident clients. (I will discuss why to use Malta in a future article).
I have also recently been involved in helping Spanish National clients transfer UK pensions to QROPS. These have come about where Spaniards have been working for a substantial number of years in the UK and built up significant personal pension or final salary benefits. The same condition 2. above applies to this situation also (Helps I speak fluent Spanish).
What does that mean to a Spanish Tax resident who came originally from a European Economic Area country like the UK? In simple terms, point 2 above applies.
“The member is a tax resident in the European Economic Area and the new pension (QROPS) is established in the European Economic Area”.
The result for most of us who transfer UK pensions to QROPS flies in the face of the headlines above which should really read:
“No Overseas Tax Charge to pay for the majority of Expats in Spain”
But maybe that would not sell as many papers!
