Chancellor Philip Hammond is to impose a 25% tax charge on pension transfers to QROPS pension schemes from tomorrow (9 March).

The move, set to be included in his post-Budget Finance Bill 2017 and announced today among the Treasury Budget papers, will cause concern among some QROPS advisers and providers that the schemes are being singled out for harsh treatment.

But it appears the change is designed to cut down on tax abuse of QROPS - a scheme used to transfer a UK pension overseas, for example if something is retiring abroad. The change may also cut down on potential pension scams where fraudsters try to use QROPS to cheat someone out of their pension.

The Treasury says that exceptions will be made to the charge, allowing transfers to be made tax free where people have a “genuine need to transfer their pension”, where:

• both the individual and the pension scheme are in countries within the European Economic Area (EEA) or
• if outside the EEA, both the individual and the pension scheme are in the same country, or
• the QROPS is an occupational pension scheme provided by the individual’s employer

If the individual’s circumstances change within five tax years of the transfer, the tax treatment of the transfer will be reconsidered. The changes will take effect for transfers requested on or after 9 March 2017.
The government will also legislate in Finance Bill 2017 to apply UK tax rules to payments from funds that have had UK tax relief and have been transferred, on or after 6 April 2017, to a qualifying recognised overseas pension scheme.
UK tax rules will apply to any payments made in the first five full tax years following the transfer, regardless of whether the individual is or has been UK resident in that period.