18 NOV 2024

How the UK’s October 2024 Budget affected QROPS

QROPS Overseas Transfer Charge

This change will be of interest to members and advisers based overseas. Prior to the October 2024 UK Budget, when a UK pension was transferred overseas to a qualifying recognised overseas pension scheme (QROPS), a 25% transfer charge (OTC) applied, unless one of five conditions were fulfilled. Two of these conditions affected residency, as follows;

• The member was resident in the same country as that in which the QROPS receiving the transfer was established.
• The QROPS receiving the transfer was established in Gibraltar or a country within the EEA and the member was UK resident or resident in a country within the EEA.

Following the abolition of the Lifetime Allowance (LTA) on 6 April 2024, 3 new allowances were introduced; the Lump Sum Allowance (LSA), the Lump Sum and Death Benefit Allowance (LSDBA) and the Overseas Transfer Allowance (OTA).

The Overseas Transfer Allowance does not interact with the other allowances. This means that it was possible for someone to transfer their pension to a QROPS established in the EEA or Gibraltar and receive two or more lump sum allowances.

What has changed?

Effective from 30 October 2024, the second of the two conditions outlined above has been removed.

What does this mean in practice?

If you live in the EEA/Gibraltar and are looking to transfer your UK pension to a QROPS, your QROPS must be registered in the same country you are living in, or the OTC will apply.

Case Study – Example 1

Sarah lives in Spain and has a UK pension worth £250,000. She was looking to transfer this to a QROPS based in Malta. From 30 October 2024, this transfer will be subject to the OTC, which is 25% of the entire fund transferred. If she lived in Malta, where the QROPS was registered, the charge would not apply.

Case Study – Example 2

Ari lives in Malta and has a UK pension worth £475,000. He is looking to transfer this to a QROPS and finds one based in his country of residence. His adviser tells him that as he is resident in the same country that his QROPS is registered and administered, he can complete the transfer without the OTC applying.

Anything Else?

The UK Government announced two further changes affecting overseas pension schemes.

From 6 April 2025, the conditions of Overseas Pension Schemes (OPS) and Recognised Overseas Pension Schemes (QROPS) established in the EEA will be brought in line with OPS and ROPS established in the rest of the world, so that:

• OPS established in the EEA will be required to be regulated by a regulator of pension schemes in that country.
• ROPS established in the EEA must be established in a country or territory with which the UK has a double taxation agreement providing for the exchange of information, or a Tax Information Exchange Agreement.

A further change announced was that from 6 April 2026, scheme administrators of registered pension schemes must be UK resident (a requirement with which IFGL Pensions already complies).

Conculsion

Transfers to Malta or Gibraltar based QROPS pensions have been popular for EEA residents. The changes announced in the October 2024 Budget will introduce a 25% charge for many of these transfers and likely rule them out for many individuals. An International SIPP will avoid the OTC and could therefore become the chosen pension product for many in the EEA instead. As SIPPs are typically a more cost effective pension savings vehicle than QROPS, this may lead to an increase in advisers recommending SIPP products instead.