For those living overseas or with overseas pension schemes, it may be possible to transfer their UK pension benefits to pension schemes outside the UK.
A transfer from a registered pension scheme to an overseas pension may only be permitted as a recognised transfer (normally made without a UK tax charge) where the overseas scheme is a Qualifying Recognised Overseas Pension Scheme (QROPS).
When is an overseas pension scheme treated as a QROPS?
A scheme must meet three layers of rules and regulations to qualify as a QROPS:
- Overseas Pension Scheme regulations
- Recognised Overseas Pension Scheme regulations
- Additional reporting requirements
Layer 1 – Overseas pension scheme
For a scheme to be classed as an overseas pension scheme under Section 150 (7) of Finance Act 2004 (other than UK Government pension schemes for civil servants working overseas), it:
A – cannot be a UK registered pension scheme; and
B – must be established outside the United Kingdom. For this purpose the scheme will be treated as established in the country where its registered office and main administration are based. The location of the scheme's main administration is where the scheme's decisions are made. For trust-based schemes, this would normally be determined by where the scheme trustees are resident; and
C – must be regulated as a pension scheme in the country in which it is established, or if there is no body by which it could be regulated, then certain conditions must be met. The Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) Regulations 2006 (SI2006/206) as amended* state the conditions for satisfying the regulatory requirements where there is no local body.); and
D – must be recognised for tax purposes as a pension by the country or territory in which it is established, or if there is no such recognition in local law then The Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) Regulations 2006 (SI2006/206) as amended* also state the conditions for satisfying tax conditions.
*Regulations amended by The Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) Amendment Regulations 2017 (SI 2017/398).
There are conditions and requirements mentioned above to satisfy requirements C and D are set out below:
A scheme must meet at least one of the following three conditions to be deemed an overseas pension scheme:
- the scheme is an occupational pension scheme, and
- there is, in the country or territory in which it is established, a body which regulates occupational pension schemes, and
- it is regulated by that body.
- the scheme is not an occupational pension scheme, and
- there is, in the country or territory in which it is established, a body which regulates pension schemes other than occupational pension schemes, and
- it is regulated by that body; and
- condition 1 is not satisfied by reason only that no such regulatory body exist in the country or territory
- condition 2 is not satisfied by reason only that no such regulatory body exist in the country or territory
a) the scheme is established in another member State, Norway, Iceland or Liechtenstein; or
b) there is in the country or territory in which the scheme is established a body which regulates providers of pension schemes and regulates the provider for the purpose of establishing the scheme in question
Tax recognition conditions
A scheme must also meet the three conditions set out below to be deemed an overseas pension scheme:
The scheme must be open to persons resident in the country or territory in which it is established.
The scheme is established in a country or territory where there is a system of taxation of personal pension income under which tax relief is available in respect of pensions, and
(a) tax relief is not available to the member on contributions made to the scheme by that individual or, if the individual is an employee, by their employer in respect of earnings to which benefits under the scheme relate, or
(b) the scheme is liable to taxation on its income and gains, and is a complying superannuation plan as defined in section 995-1 (definitions) of the Income Tax Assessment Act 1997 of Australia, or
(c) all or most of the benefits paid by the scheme to members who are not in serious ill health are subject to taxation. (For definitions of normal minimum pension age and the ill-health condition, see 'What is meant by 'normal minimum pension age'?' section below.)
It may be important to note that 'tax relief' for the purposes of this condition includes the grant of an exemption from tax. In order for condition (c) to be met, provision for serious ill-health under the pension tax scheme of the country in which the scheme is established should fundamentally adhere to those provisions which apply to a member of a UK registered pension scheme.
The overseas pension scheme is approved or recognised by, or registered with, the relevant tax authorities as a pension scheme in the country or territory in which it is established.
Layer 2 – Recognised overseas pension scheme
For an overseas pension scheme to be treated as a recognised overseas pension scheme, the scheme must meet the following conditions in addition to those for an overseas pension schemes in accordance with Section 150 (8) of Finance Act 2004. To meet the requirements, the scheme must ensure that where tax relief is available to a member of the scheme who is not resident in the country or territory in which the scheme is established, the same or substantially the same tax relief must be available to local residents regardless of whether the member was a local resident when they joined the scheme of at any other time they were a member of the scheme.
For the purposes of this requirement, 'tax relief'
(a) includes exemption from tax other than exemption by the use of double taxation arrangements (an agreement between the country or territory where the scheme is established and another country or territory with a view to affording relief from double taxation), and
(b) is any tax relief that is available under the system of taxation of personal income in the country or territory in which the scheme is established.
And then meet one or more of the following conditions:
A – be established in a Member State of the European Union, Norway, Iceland or Liechtenstein, or in a country or territory with which the UK has a Double Taxation Agreement that contains exchange information and non-discrimination provisions*, or
B – be an overseas public service pension scheme
* for schemes established in Guernsey , where the scheme is an exempt pension contract or an exempt pension trust within the meaning of section 157E of the Income Tax (Guernsey) Law, 1975, the scheme must not be open to non-residents of Guernsey.
If meeting condition A, two further conditions must be met –
- where tax relief is available on benefits paid from the scheme, this relief must be available to residents in the same or substantially the same manner
- benefits payable to the member from the scheme ( in relation to the members relevant transfer fund) are not payable earlier than the minimum pension age of 55 (except if the ill-health conditions is met) or if payable earlier is only paid in circumstances where they would be authorised member payments if they were made by a registered pension scheme
Layer 3 – Notification and additional reporting requirements to HMRC on the scheme manager of a QROPS
To meet these requirements the scheme manager must complete HMRC form APSS251, to:
- notify HMRC that the scheme is a recognised overseas pension scheme and have provided evidence of that if required by HMRC
- inform HMRC of the name of the country or territory in which the scheme is established and the scheme manager's name (individuals or company), and the contact details for the scheme along with address where day to day administration is carried out.
- undertake to notify HMRC if the scheme ceases to be a recognised overseas pension scheme undertake to provide HMRC with certain information on making payments in respect of relevant scheme members including the member's name address and if relevant NI number within 90 days of the payment being made or deemed as being made. Examples of this are details of any lump sum payment or commencement of a pension to a UK resident, UK relevant member or a member who has been non-UK resident for less than ten complete tax years.
- undertake, from 6 April 2013, to provide evidence that the scheme is a ROPS every 5 years to maintain its QROPS status, once granted.
- Provided an undertaken to HMRC by 14 April 2017 that will meet the requirements to comply with the overseas transfer charge.
In addition, the member payment provisions will apply to benefit payments where the member:
(a) is resident in the UK when the payment is made (or is treated as made), or
(b) is not UK resident at the time the payment is made, however they have been resident in the past five tax years from the time the payment is made. 10 years for transfer from 6 April 2017.
NOTE: A payment for this purpose includes a transfer from the scheme. When reporting is required, the scheme manager must report using Form APSS253 (available from www.hmrc.gov.uk).
In response to this registration, HMRC will send the scheme a letter of acceptance confirming that the scheme is a QROPS.The letter will show the unique QROPS reference number for that scheme.Details of the QROPS will be entered on the APSS database.
HMRC may ask the scheme manager for more evidence before issuing a letter of acceptance (or rejection).