UK Pension Transfers and Qualifying Recognised Overseas Pension Schemes (QROPS)
1. What has happened?
On 6 April 2006, new tax rules came into force in the UK in relation to the taxation of benefits and transfers from UK tax registered pension schemes. From that date, transfers into schemes that are not Qualifying Recognised Overseas Pension Schemes (QROPS) become subject to a UK penalty tax regime.
2. Can I transfer to a scheme that is not recognised as a QROPS?
Yes, if the UK scheme permits but you will incur the UK penalty tax regime.
3. How significant is the UK penalty tax regime?
Very. Transfers to a non-QROPS scheme are classified as "unauthorised" and UK penalties of up to 55% of the amount withdrawn and paid to a non-QROPS scheme may be incurred.
4. Are there any New Zealand QROPS?
Yes, there are a number of Superannuation Schemes that are registered under the New Zealand Superannuation Schemes Act 1989 which have also been authenticated by the UK tax authorities as a QROPS.
5. If I transfer, will I incur any charges?
No, a transfer to a QROPS is an authorised payment and so no direct transfer or unauthorised payment charges will apply. A charge may however be agreed between you and your adviser.
6. Will the NZ QROPS impose any special withdrawal restrictions on transferred amounts?
Each NZ QROPS is different and will have its own rules as to what can be withdrawn and when. Your adviser will help you decide which QROPS is most suitable for you.
7. Can withdrawals of transferred amounts from the QROPS incur a UK tax charge?
Yes. A UK "unauthorised payments charge" may arise if:
» the withdrawal is treated as an "unauthorised payment" for UK tax purposes; and
» you are UK tax resident at any time during the UK tax year in which the withdrawal is made or in any of the 5 previous UK tax years.
8. So, am I exempt from this UK tax charge if I withdraw after I have been a non-UK tax resident for at least 6 UK tax years?
Yes.
9. I may wish to withdraw before the expiry of that 6 year period. What is an "unauthorised payment" that may incur the UK tax charge in these circumstances?
This is complicated. Essentially, an "unauthorised payment" is a payment that would have been unauthorised for UK purposes if it had been made from the UK scheme. This could include a withdrawal that is made before you reach the relevant UK retirement age. It could also include a withdrawal made in the form of a lump sum rather than a pension (although the trivial commutation rules currently permit schemes valued up to 1% of the Lifetime Allowance to be taken entirely as cash, albeit with 75% of this amount liable to UK tax).
Note that if you transfer from a UK scheme to a QROPS and subsequently make additional contributions, any withdrawal made before the expiry of the 6 year period will be treated as withdrawing the UK portion first. If the withdrawal is an unauthorised payment, it could be subject to an unauthorised payments charge. In other words, adding funds to your transferred benefit will not prevent the UK tax regime from applying to your transferred funds.
As mentioned, the relevant UK rules are very complicated and they depend on the individual circumstances of the member. If you are considering withdrawing from a QROPS prior to the end of the 6 year period, you are strongly advised to seek UK tax advice specific to your personal circumstances.
10. How much is the UK tax charge and who is liable for it?
The member is liable for a charge of up to 55% of the amount withdrawn.
11. Will the QROPS notify UK authorities if a withdrawal is made during the 6 year period?
Yes. In order to obtain QROPs status, the NZ scheme gave an undertaking to provide certain information to the UK authorities. This information includes providing the name and address of the member and the date, amount and nature of the payment where the member has transferred from a UK scheme and then subsequently withdrawn.
12. Will this information be provided to UK authorities where the withdrawal takes place after the end of the 6 year period?
No. The notification requirement does not apply in these circumstances. The member will be required to certify that the 6 year period has expired.
13. Will I incur any charges if I add money to my scheme after transferring from the UK?
If a member adds amounts to the scheme following transfer from the UK scheme any member payment charge for which they may be liable will be levied only against that part of the fund that has benefited from UK tax relief. Members should seek independent advice on whether contributions paid by or in respect of them constitute a tax-relieved fund.
Need more information? email jeff.royle@nztsl.co.nz
