How HMRC’s OTC could impact British expats who transferred their UK pension to a New Zealand QROPS after 9 March 2017
If the last few years have taught us anything, it’s that life can take some unexpected twists and turns. Even the most meticulously thought-out plans can change when the Universe chucks us a curveball.
Every year, British expats who had intended for their move to New Zealand to be permanent, move back to the UK or relocate to another overseas territory.
The offer of a more alluring career opportunity. The pull towards family (ageing parents or children and grandchildren). A feeling that things simply aren’t working out as hoped.
Everyone has their reason.
One potentially unwelcome – and possibly little-known – repercussion of this second move is the Overseas Transfer Charge (OTC), which could affect anyone who has transferred their UK pension to a New Zealand QROPS (Qualifying Recognised Overseas Pension Scheme).
What is the Overseas Transfer Charge?
If you don’t live in the same country where the QROPS is registered, His Majesty’s Revenue & Customs (HMRC) could impose a 25 per cent tax on the original amount transferred to the QROPS.
The OTC is time-sensitive to a defined five-year period, so it won’t apply in all cases. The clock starts ticking on the date of the original transfer from the UK-registered pension scheme and stops on the last day of the fifth tax year after this. For example, if the initial transfer occurred on 18 March 2019, the five-year window ends on 5 April 2024.
Is it possible to mitigate the effects of the Overseas Transfer Charge?
In addition to the five-year timeframe, there are a couple of scenarios under which an individual can claim back the OTC.
If they:
- Move again, back to the country (in our case, New Zealand) where the QROPS is registered
- Transfer that first QROPS into another QROPS registered in their new tax residency
If the person is eligible to withdraw benefits from the QROPS (e.g., they’re aged 55+) within those five years, they can do so and then move to the new country with their money in cash.
There is also an exception to the OTC rule if someone relocates from one European Economic Area (EEA) country to another. For instance, they could return to France and keep their QROPS in the Republic of Ireland without an OTC levy.
The importance of seeking specialist tax advice for pension transfers
This OTC summary may sound fairly straightforward, but it’s important to remember that every individual’s circumstances are different.
GBPensions always recommends that clients seek specialist tax advice regarding their pension transfer. The professionals we work alongside are not generalist accountants but experts within the niche area of cross-border tax regulations.
If you’ve transferred your UK pension to a New Zealand QROPS and are thinking about leaving Kiwi shores, please get in touch.
We can chat about how this could affect your funds and, where appropriate, reconnect you with one of our recommended specialists.
