But however you feel about it we shouldn’t be surprised by this change and I suspect it will continue to evolve when we finally leave the EU.
The changes bring in a 25% flat rate tax on all the benefits leaving the UK if they aren’t going for what HMRC deem valid reasons. The QROPS regime was established, I believe, to allow those retiring abroad or returning to their home country after working in the UK and building up tax relieved funds to take their funds with them. This is what HMRC are trying to ensure it is used for going forward.
However, what they have seen is people transferring abroad to avoid the lifetime allowance charge and to possibly invest in assets that wouldn’t be allowed in the UK without incurring charges. I don’t think HMRC thought this would be the case.
The overseas pension charge will restrict some individual’s plans to transfer abroad but only really if they are intending on not going with the funds, or if the funds and the individual don’t both remain in the EEA. The majority of schemes that were on the list when the change was announced were non EEA schemes and removing those would have only left just over 300 schemes for those who don’t intend to leave the UK to use.
This is far from the restrictions HMRC would probably hope for and I can see the EEA being subject to the same restrictions as other countries further down the line, when we have left Europe. This will restrict the market further and bring the options more in line with the original intentions.
Scams
As some other commentators have said, this will not remove the possibility of scammers still using QROPS to gain access to funds but it may make some think twice.
More still needs to be done to combat those utilising overseas schemes to trick people out of their funds but, by restricting those not leaving the UK to using only schemes in the EEA at least there will be a certain level of protection that can be relied upon.
For those who would be targets for taking the funds further afield, the immediate 25% tax charge should hopefully work as a wake-up call and make individuals think twice about what they are doing.
Further thoughts
Taking funds abroad to avoid the lifetime allowance may well seem like a great planning opportunity. However, there is often outcry about the amount of tax relief given on pensions and by allowing the funds to leave the country and avoid repaying at least some of this tax in the future without a legitimate reason, seems unfair to those who remain and pay their taxes.
Claire Trott, Head of Pensions Strategy, Technical Connection.