In March 2017, in an effort to curb tax avoidance strategies, the UK exchequer introduced a 25% exit tax on transfers to QROPS outside of the EEA. At the time this tax was seen as punitive for those moving to any non-EEA country but it has had the desired effect. HMRC data from July 2019 shows that while the overall number of transfers to QROPS increased marginally to 5,000 in 2018/19, an increase from 4,700 in 2017/18, the total value of assets being transferred fell from £740m to £640m. At present, where the QROPS is in the EU or EEA and the scheme member is also resident in that country or any other country in the EU or the EEA, the exit tax will not apply.
Brexit & QROPS
In September 2018, the secretary for pensions and financial inclusion stated in a written answer to Parliament that the current QROPS regime for transfers to the EEA will remain even in a hard Brexit scenario. However, the UK Government stopped short of providing a guarantee that the EEA exemption from exit tax will remain after the Brexit implementation period which, as at the date of writing, ends in December 2020. Much will depend on the outcome of negotiations during, and after the implementation period as to whether or not the exit tax becomes applicable to EEA transfers.
QROPS & Ireland
To qualify as a QROPS, the overseas pension arrangement must meet a number of qualifying criteria and the administrative requirements in carrying out a transfer are known to be onerous for the QROPS provider. While HMRC do not review each new QROPS there is a requirement for a UK regulated pension advisor to approve the overseas transfer. This requirement has led to a very thorough and prolonged diligence process and this administrative burden has led to many Irish-based QROPS providers limiting their transfers to only a small number of cases.
Even if Brexit is secured with a workable withdrawal agreement by 31st January 2020, it might be prudent for UK expats to review their pension arrangements now to see if a transfer to a QROPS is a suitable option for them and to take the necessary advice. It will be especially relevant for expat employees of multi-nationals that have re-located their headquarters or opened a new location within the EEA.
For more information regarding QROPS, contact a member of our Pensions team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.