Qualified, Recognised, Overseas Pension Transfers, QROPS for short, made headlines last year when Chancellor Philip Hammond announced that a 25% charge would be levied on all UK pensions being transferred overseas, effective the very next day.
The decision has ultimately outraged sections of Britain’s expat community, who believe that the ruling blatantly discriminates against some – but not all – of them.
The rules around QROPS taxation are slightly confusing. The 25% does not apply in a number of different scenarios, such as if the QROPS holder is resident in the same country as the scheme, if the holder and scheme are both based within the European Economic Area (EEA), if the holder’s scheme has been set up by an employer as an occupational scheme, or as a pension scheme in recognition of past service.
It is also possible to move away from a country where you are also holding a QROPS scheme, for a period of up to 5 years, without incurring any overseas charges.
In any other circumstances however – if you are retired outside of the EEA for example – the charge is incurred, and according to one expat, William Wilson, this makes the tax discriminatory. Wilson is so outraged by the ruling on QROPS charges, that he has launched his own petition to try to change it.
“Not every expat pays and the transfer charge depends on where you live and where you have your QROPS pension, not on comparable factors for each expat,” says Wilson. The petition, which has been registered with the UK Government and Parliament, explains that:
“Expats pay the charge on moving pensions from the UK to a QROPS or between QROPS unless they live in Europe or one of 13 countries which have QROPS outside Europe, which is unfair to the thousands who cannot access a QROPS pension where they live.”
According to the HMRC average transfer value, expats subject to the QROPS transfer charge pay on average £23,272 for the right to switch their pensions overseas. More than 105,000 expats have used the scheme since it was first launched in April 2006.
Wilson argues that, because expats have no official representation in parliament, their interests are not looked after as they should be. Unlike constituents in the UK, they have no elected MP to fight their corner. And yet, the number of British expats is far larger than the average number of voters in a British constituency.
This has allowed Parliament to introduce the ruling, and the charge, without fear of “protest or clamour in the media”, writes Martin Hughes of MoneyInternational.com.
There are alternatives to QROPS, such as Self Invested Pension Plans, or SIPPs for short – a form of self-managed pension that allows for owners to pull together pots from different past employers, and convert a final salary pension into a lump sum, which can be passed on to family after the holder’s death.
SIPPs, however, are subject to death taxes, and also subject to local country pension taxation rules.
So far, Wilson’s petition has attracted 147 signatures.
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