Individuals may want to consider transferring their UK pension overseas for various reasons. This blog focuses on the recent changes in rules around these transfers but not on the relative merits of doing so, which would require personal advice.
For many years, you could transfer your UK pension to a qualifying recognised overseas pension scheme (QROPS), even if you were still a UK resident. However, under the new rules, significant charges may now apply if you do so. Importantly, the new rules mean that the charges may apply even for non-UK residents.
Why must overseas transfer be to a QROPS?
Pension transfer rules allow a UK pension to be transferred internationally, but only if going to a QROPS. It is up to you to confirm that the receiving scheme is a QROPS, but in practice the remitting pension scheme would typically also want confirmation of this.
If you attempt to transfer your pension overseas to a scheme that is not QROPS, it is likely that the remitting UK pension will not allow the transfer. In case the transfer is allowed, you would suffer a tax charge of at least 40%.
The jurisdiction of the QROPS makes a difference
For those who completed their pension transfer before 30 April 2025, the rules were slightly more flexible. Since then, people transferring a pension to a QROPS who are not residents in the same country where the QROPS is based, may suffer a 25% charge.
The updated rules mean it is no longer sufficient to be living in a EU country and transfer to QROPS in another EU country, as used to be the case. The QROPS must be in the same country as your residence, which can pose a challenge because not all countries have schemes that would be suitable.
It is worth noting there is a five-year tail on this country test. Moving away from the country where the QROPS is based in within five years of transfer, might also trigger the 25% charge.
How much can you transfer?
If you have found a suitable QROPS in the country where you are a resident, and will stay for five or more years, there is still a potential charge to consider. The overseas transfer allowance (OTA) was brought in at the same time the UK’s pension lifetime allowance was abolished (6 April 2024).
The OTA for most people will be £1,073,100. Potentially a familiar number, as it matched the standard lifetime allowance before it was abolished. For those who have a higher protected lifetime allowance, the OTA may also be higher.
This number is important because if you transfer a UK pension with a value over the OTA, you’ll have a 25% overseas transfer charge.
It is worth highlighting that an individual’s OTA may be reduced by the value of a previous benefit crystallisation event, such as taking tax-free cash or starting pension income. In such a scenario, the remaining OTA available may be lower or even fully extinguished. This could therefore create scenarios where there is a 25% charge, even if the value of the pension is lower than £1,073,100.
Alternatives to a QROPS transfer
There may be circumstances where a transfer to a QROPS continues to be the optimal choice, and even times where an individual’s circumstances mean they are happy to pay a charge to do so. However, for most, considering other options such as more flexible UK pension arrangements could be more suitable.
For example, a good quality, flexible Self Invested Personal Pension (SIPP) often meets most of the objectives motivating individuals to transfer to a QROPS. If set up in the right way, a SIPP may offer access to a wide range of investment assets, including in foreign currencies if needed, pension payments could even be made outside of the UK and in the currency of your choice. The UK also has many international tax treaties and so depending on your country of residence, you may even receive the pension free from UK income tax withholding.
Several SIPP providers have been marketing these types of UK pension as an “International SIPP”, but they do not necessarily need to have this branding to provide the flexibilities needed.
We’re here to help
There are numerous factors to consider before transferring. If you are considering doing so, or perhaps if you are looking for extra flexibility on how to invest your pension and receive benefits, please do reach out to one of our specialist advisers.
Nathan Prior
Partner, Head of PWM International
nprior@partnerswealthmanagement.co.uk
020 7444 4053
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