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QROPS (ROPS) Overseas Transfer Charge

From 9th March 2017, transferring a UK pension out of the UK may be subject to a 25% overseas transfer charge. Find out all you need to know

Written on 20 July 2022

In the 2017 budget the Chancellor of the Exchequer announced that pension transfers to QROPS which were requested on or after 9th March 2017 could be subject to an overseas transfer charge of 25% on the value of the pension transfer.

The overseas transfer charge has been introduced to deter people transferring pensions out of the UK for purely UK tax avoidance reasons and is designed to ensure that if a QROPS goes ahead, any potential lost tax revenue is recouped by the government when the transfer is made.

This article is created as a guide only and we will be updating over the coming days to incorporate the full rule changes surrounding QROPS and overseas transfer charges.

If you have transferred a UK pension to a QROPS before 9th March 2017, you will not be affected by the overseas transfer charge.

Transfers affected by the overseas transfer charge

It is important to note that not all QROPS pension transfers will be subject to the new overseas transfer charge.

However, if you request a transfer on or after the 9th March 2017 AND any of the following criteria apply to you, you will be required to pay 25% of the value of the transfer in advance:

  • You are not a tax resident in the EEA and the pension transfer is to a QROPS in a country other than your country of residence (i.e. if you are a tax resident in the UAE and your QROPS is in Malta).
  • You are a tax resident in the EEA and the pension transfer is to a QROPS outside of the EEA (e.g. you live in France and your QROPS is in Australia)
  • You (the member) has not provided all the required information before the transfer is complete
  • If you requested your pension transfer before 9th March 2017, but not completed and the funds are then sent to a different QROPS which was not the scheme included in the original request.
  • When the transfer was requested you were either transferring your pension to a QROPS in your country of residence, or you were a tax resident in the EEA and transferring to a QROPS also in the EEA, however, within five years of the transfer your circumstances change such that you no longer meet the above criteria. For example, if you move outside the EEA or transfer your QROPS funds away from your country of residence.

Transfers not affected by the overseas transfer charges

If the following criteria apply to you, you will not be subject to the overseas transfer charge:

  • Your pension transfer was formally requested before 9th March 2017, even if the funds have not been received by that scheme
  • Your pension transfer is to a QROPS in the EEA and you are a tax resident within the EEA (i.e. any country within the EU and also Liechtenstein, Norway and Iceland and Gibraltar)
  • Your pension transfer is to a pension scheme in your country of residence (eg. if you are a tax resident in Australia and you transfer your pension to an Australian QROPS)
  • Transfers which are subject to unauthorised payments because they are not recognised transfers
  • You are a former employee of an international organisation that has set up a QROPS specifically to provide benefits for former employees
  • You are transferring to a QROPS which is an overseas public service pension scheme you are employed by an organisation participating in that pension scheme.
  • You are an employee of an organisation sponsoring an occupational pension which qualifies as a QROPS

Understanding your tax residence status

As the overseas transfer charge does not apply to people transfer UK funds to QROPS in their country of residence (or another EEA country if living within the EEA), it is important to understand where you are considered resident for tax purposes. In the UK, the HMRC devised the Statutory Residence Test, however each country with have their different criteria. If you are unsure you should seek local tax advice.

How the overseas transfer charge will be paid

Both you (the scheme member) and the manager of the pension scheme are liable to pay the overseas transfer charge. It is a requirement of the scheme’s manager to deduct the necessary transfer charge from the pension funds before the transfer is complete.

The charge must be reported and paid to the HMRC by the scheme manager and any additional payments, should they be required, be covered in your Self Assessment.

Options for people considering a QROPS on or after 9th March 2017

If you are considering transferring your UK pension scheme and you think you are going to be subject to the new overseas transfer charge, there are still a number of options that are available to you.

Firstly, you can continue with the transfer and lose 25% of your pension. Obviously, this is not an option for everybody, however, if you have genuine legitimate reasons why you want to transfer to a QROPS and you feel that the value of a QROPS is worth paying 25%, then of course you can continue. Please be aware that the overseas transfer charge is payable before the transfer is complete.

Secondly, consider a UK based SIPP. Wherever you live, the likelihood is that when you draw an income from your pension, you will be subject to income tax in your country of residence. This includes the income from a QROPS. While the exact tax treatment of tax residents varies from country to country, any income which comes from the UK is subject to UK tax rules.

If you live in a country which has a double taxation treaty with the UK which means that you will not be subject to income tax in both jurisdictions, leaving your pension in the UK won’t necessarily change your tax payments (other than making the relevant declarations in accordance with the tax treaty requirements). However, there may be other options for how to manage your UK pension, without transferring abroad and incurring overseas transfer charges, such as a UK SIPP.

QROPS have long been regarded as similar to a SIPP and the differences between the two schemes have been eroded over the past few years. Therefore, if you were discussing a QROPS transfer and are concerned about how the overseas transfer charge will affect your options, speak to your adviser who should be able to review the transfer and discuss alternatives.

Request a free pension consultation

If you are either considering a QROPS transfer, or are currently in the process and are now concerned about the overseas transfer charge, enter your details using the form to request a free consultation with an independent financial adviser.

During the consultation, you can check whether your transfer will be subject to the overseas transfer charge and also discuss other options available to you should you decide not to proceed with your QROPS transfer.

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