Transferring a UK pension fund overseas

Transferring a UK pension fund overseas

It is not uncommon for someone to be living in one country and have a pension plan in another.

Employees coming to the UK to work will usually find themselves automatically enrolled into their employer’s UK workplace pension scheme – only to leave the UK later. Equally UK residents may be looking to plan their retirement abroad.

So, what are your options if you are considering the transfer of a UK pension plan to a non-UK pension plan?

Transferring a UK pension fund overseas

There is nothing to stop an individual from transferring a UK pension fund to an overseas pension plan. However, it’s important to be aware of additional UK tax charges that could be incurred if the correct process isn’t followed.

An individual who has left the UK may prefer their UK pension scheme to be transferred to a local pension scheme; if only to have the funds denominated in the local currency and avoid ongoing dealings with the UK tax system.

Transfer should be to a recognised overseas pension scheme

A recognised overseas pension scheme (ROPS) is a non-UK pension scheme that meets (or rather assures HMRC that it meets) the requirements regarding local regulation and taxation as a pension scheme. The overseas pension provider also undertakes to report to HMRC when retirement or death benefits are paid, or the fund is transferred on to another scheme.

If the overseas pension scheme is not a ROPS, the transfer will be subject to penalising UK tax charges (unauthorised payment charges). These are substantially borne by the individual (55% of the amount transferred) with the UK scheme being liable to a further 15%.

Understandably, UK pension providers will not support transfers other than to a ROPS.

The ROPS must be in the same country

Since April 2017, there has been a requirement that, unless the pension transfer is to a ROPS in the country where you are living, or you both reside in the European Economic Area (the latter a concession as yet unaffected by Brexit) the amount transferred is subject to an overseas transfer charge of 25% of the fund transferred.

The overseas transfer charge applies retrospectively if, having met the same country/ European Economic Area requirement on transfer, that situation changes at all in the following five years. That is, you emigrate from the original country/ European Economic Area and your ROPS stays. If you move to a non-European Economic Area country that has a ROPS, you would transfer your existing ROPS fund as well. However, moving to another country that does not have ROPS (for example, the USA) rules out this option and will inevitably result in the retrospective overseas transfer charge.

Member payment charges

ROPS funds remain open to possible UK ‘member payment charges’ for up to five years after the transfer or, if later, up to 10 full tax years of non-UK residence. This can depend on when the original transfer took place.

During this so-called ‘relevant period’, any payment by the ROPS from the former UK fund that is at odds with UK pension rules – for example, payments made before age 55, transfer on to another scheme that is not a ROPS, or certain types of investment – are liable to member payment charges of up to 55% of the offensive payment.

Member payment charges can also apply to certain lump sum payments that are not otherwise ‘offensive’ under UK pension rules, although the charge may be no more than UK Income Tax (which would be how the lump sum would be taxed if paid from a UK pension scheme) and, indeed, may be exempt from UK tax if that is what a double tax agreement provides.

Alas, the passage of time will not avoid a UK ‘taxable property unauthorised payment charge’ should the former UK pension fund ever invest in residential property or ‘tangible moveable property’ (gold bullion, works of art, wine, etc.)

The overseas transfer allowance

6 April 2024 saw the abolition of the lifetime allowance and with it the UK tax surcharge on pension funds in excess of the allowance. Except that is, on transfers to ROPS.

From 6 April 2024, the lifetime allowance has been replaced by the overseas transfer allowance. The overseas transfer allowance from 6 April 2024 is the same as the unused lifetime allowance on 5 April 2024.

To the extent that the amount transferred to a ROPS is more than the overseas transfer allowance, the excess is subject to the 25% overseas transfer charge.

When transferring your pension plan to a ROPS, it may be worth considering only transferring an amount equivalent to the overseas transfer allowance and leave the remainder in the UK pension plan. While the amount retained remains directly within the UK tax system, the right to tax retirement benefits in payment may well devolve to the country of residence, if that is what the double tax agreement says.

Would you like to know more?

We look at the options for leaving a UK pension fund in situ and eventually drawing retirement benefits while living abroad, in our insight: UK pensions and non-UK residents – leaving a pension plan in the UK.

This article intended to give you an insight into the treatment of UK pension plans, primarily from a UK tax perspective, based on our understanding of legislation in force as of September 2024. It is not a comprehensive technical paper and should not be relied upon in deciding what to do with your pension plan. Please note that we cannot provide investment advice and you should consider seeking advice from an independent financial advisor before committing to any course of action that affects your investment portfolio.

Would you like to know more?

If you have any questions about the above, please get it touch with your usual Blick Rothenberg contact or Tomm using the form on this page.

We look at the options for transferring the UK pension fund to a non-UK pension scheme in our insight: UK pension plans and non-UK residents – transferring a UK pension fund overseas.

Disclaimer:

This article is intended to give you an insight into the tax treatment of UK pension plans, primarily from a UK perspective, based on our understanding of legislation in force as of September 2024.

It is not a comprehensive technical paper and should not be relied upon in deciding what to do with yours.

Please note that we cannot provide investment advice and you should consider seeking advice from an independent financial advisor before committing to any course of action that affects your investment portfolio.