The 25% transfer charge, introduced in the Budget of March 2017, was levied on 24 transfers in the tax year 2018/19 raising £760,846 in tax. This compares to the previous tax year where 30 transfers attracted charges totalling £1.4m. The amount of tax raised is well below what the Government estimated it would raise when the charge was announced.
Broadly speaking the transfer charge applies unless the member is resident in the same country in which the QROPS is established, or the member is resident in a country within the European Economic Area (EEA) and the QROPS is established in a country within the EEA.
Andrew Tully, technical director at Canada Life, commented: “It looks like the QROPS charge has done the job in limiting the appetite for moving pensions outside the UK to destinations other than the EEA. The pension freedoms will also have had an effect in the general decline in the number of transfers to QROPS, simply because of the greater flexibility in how people can access their pensions in the UK.
“The number of pension transfers attracting a charge is a very small proportion of the overall number of transfers to QROPS, and as a result the amount of tax raised is very low. However, I’ve no doubt the Treasury will be pleased another tax loophole has effectively been closed and further tax leakage prevented.”
QROPS transfer charge explained
In the March 2017 Budget, then Chancellor Philip Hammond introduced a 25% tax charge for qualifying pension transfers. It was hoped the introduction of a charge would discourage transfers from UK schemes where the person is seeking to reduce their tax liability by moving their pension wealth to a new jurisdiction. Government figures published at the time suggested the measure would raise £65m for the Exchequer in 2017/18, and £60m in 2018/19. The tax charge is typically applied where the QROP resides outside the EEA2.
According to data from HMRC the number of pension transfers to QROPS peaked in 2014/15 with 20,100 transfers valued at £1.76bn. The number of transfers has reduced considerably over following tax years, and for 2018/19, HMRC recorded 5,000 transfers worth £640m.
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