When might an overseas transfer be considered?

An overseas transfer may be considered where:

• A client is permanently relocating outside of the UK
• Their pension arrangements need to align with their country of residence.

However, it may not be appropriate where:

• There is a risk of losing valuable benefits
• The transfer could result in additional tax charges 
• The client’s long-term residency plans are uncertain. 

What does overseas mean?

It’s important to understand what ‘overseas’ means when looking at pension transfers. The UK is formed of England, Scotland, Northern Ireland and Wales, if the scheme is not set-up and administered in one of these countries then it is an overseas scheme.

There is sometimes confusion around Jersey, Guernsey and the Isle of Man, these are crown dependencies of the UK and are viewed as overseas and not part of the UK.

Recognised overseas pension scheme (ROPS)

To qualify as a QROPS a scheme must satisfy the conditions to be a ROPS first. A ROPS is an overseas pension scheme which has declared to HMRC that they meet the ROPS requirements laid out in the legislation (see below). These schemes are located outside of the UK and declare they meet specific criteria to be recognised as similar to a UK pension scheme. This allows UK residents who are moving, or have moved abroad, to transfer their UK pension savings to an overseas pension scheme.  

Requirements to qualify as a ROPS  

There are various requirements a scheme must satisfy before they can declare to HMRC they are a ROPS. To be a ROPS the following conditions must be met: 

• It is an Overseas pension scheme as defined in HMRC Pension Tax Manual PTM021000
• The scheme must meet the ‘Benefit Tax Relief Test’ as defined in HMRC Pensions Tax Manual: PTM112300
• The scheme must meet the ‘Pension Age Test’ as defined in HMRC Pensions Tax Manual: PTM112300 

And at least one of the further requirements below:  

• a country or territory with which the UK has a double taxation agreement that makes provision for exchange of information,
• a country or territory with which the UK has a tax information exchange agreement (TIEA). 

Note, if the scheme is established in Guernsey and approved under section 157E of the Income Tax (Guernsey) Law 1975 it must also be closed to non-residents. 

Qualifying recognised overseas pension scheme (QROPS)

A QROPS is an overseas pension scheme which has declared to HMRC they meet the ROPS requirements laid out above and has agreed to provide HMRC with specific information. This means it is the only type of overseas scheme you can transfer a UK pension into and for it to be a recognised transfer.  

HMRC Pensions Tax Manual PTM100010: Transfers: essential principles - What is a recognised transfer?

Requirements to qualify as a QROPS  

To be recognised as a QROPS a scheme must meet all the conditions to be a ROPS and:

• Will report information on pension savings that have received UK tax relief and pay tax when due, including those related to the overseas transfer charge.
• Re-notify HMRC generally every 5 years that the scheme is a recognised overseas pension scheme (and supply any evidence required to prove this),
• Tell HMRC the name of the country or territory that the scheme is set up in, and
• Agree to comply with necessary administrative and reporting requirements - including those relating to the new overseas transfer charge.

A QROPS is the top of the tree in HMRC's eyes when it comes to foreign pension schemes. Even if all the requirements are met, HMRC can refuse to recognise an overseas scheme (for instance if it doesn't provide all the information it said it would).

HMRC maintains a list of recognised overseas pension schemes (ROPS). If a scheme appears on this list, it confirms the scheme meets the conditions to be a ROPS, the list is not exhaustive, and a scheme will only appear on the list if they have satisfied HMRC’s requirements and asked to be placed on the list. It does not confirm the scheme is a QROPS this must be confirmed by the transferring scheme before the transfer is made. It is the trustees of a UK scheme's responsibility to check whether the scheme is a QROPS or not. If it is not, the transfer will be an unauthorised payment resulting in tax penalties, which could significantly reduce the pension value being transferred.

HMRC’s requirements for the transfer of a UK registered pension scheme to a QROPS 

When an individual requests a transfer to a QROPS, the administrator of the transferring scheme will ask the individual to provide various details about themselves and details of the scheme they would like to transfer to. 

Details of the information required can be found in  HMRC Pensions Tax Manual PTM102900 - Transfers to a QROPS: member actions - information to be provided before the transfer

An individual’s written acknowledgement 

The individual must sign a written statement confirming they're aware a transfer other than a recognised transfer to a QROPS: 

• gives rise to a liability under section 208 (unauthorised payments charge), and
• may give rise to a liability under section 209 (unauthorised payments surcharge). 

They must also acknowledge in writing they are aware: 

• a recognised transfer to a QROPS may give rise to a liability to the overseas transfer charge, and
• of the circumstances in which liability arises, liability is excluded from the outset, and liability is excluded only if conditions continue to be met over a period of time.

Overseas pension transfer to a non-QROPS scheme

A non-recognised transfer may result in the following tax penalties:

• An unauthorised member payment charge of 40% of the transfer value.
• If all unauthorised payments in a 12-month period are more than 25% of the fund value, an unauthorised payment surcharge of 15% of the transfer value will be payable by the individual.
• The registered pension scheme will have to pay a scheme sanction charge of 40% of the transfer value. If the scheme administrator has deducted the individual's tax charge from the transfer payment and paid the tax charge to HMRC on the individual's behalf, the scheme administrator may reduce the amount of the scheme sanction charge by the lesser of 25% and the amount of the individual's tax charge deducted as a proportion of the transfer payment, and
• If the amount of non-recognised transfers exceeds 40% of the scheme's assets, it could be de-registered with a de-registration charge of 40% of the scheme's assets.

HMRC Pensions Tax Manual: PTM131000 Taxation of unauthorised payments

Overseas transfer allowance 

The overseas transfer allowance is set at the same level as an individual's lump sum and death benefit allowance before any deductions are made. 

For those without lifetime allowance protection on 5 April 2024, and who haven’t crystallised any benefit before 6 April 2024, their allowance on 6 April 2024 was £1,073,100. If they do, the higher protected amount applies.  

If there had been any benefit crystallisation events (BCE) before 6 April 2024, the allowance is reduced by the percentage of the lifetime allowance used before that date. 

However, where a BCE 1 (taking drawdown pension) occurred before 6 April 2024, the amount tested against the lifetime allowance, under the BCE 1, is revalued and added back in. 

Example: Marissa wishes to transfer £400,000 from a registered pension scheme to a QROPS. 

In the 2017/18 tax years, she used 80% of her lifetime allowance, which includes £450,000 designated to drawdown and tested under BCE 1. She does not hold any lifetime allowance protection. 

Her available overseas transfer allowance is: 

£1,073,100 – (£1,073,100 x 80%) + [£450,000 x (£1,000,000/£1,073,100)] = £633,965.82 

Every time there is a transfer to a QROPS on or after 6 April 2024, the overseas transfer allowance is reduced by 100% of the value of the transfer. 

If the transfer exceeds this amount, then the overseas transfer charge of 25% on the excess is deducted from the transfer. 

It should be noted that although a transitional tax-free amount certificate can alter an individual’s lump sum and death benefit allowance, this has no impact on their overseas transfer allowance. 

When does the overseas transfer charge apply?

Even if the amount being transferred is within the individual’s remaining overseas transfer allowance, and the transfer to the QROPS is a recognised transfer, there might still be a tax charge on the transfer.

HMRC Pensions Tax Manual PTM102200 - Essential principles of the overseas transfer charge

For recognised transfer requests on or after 9 March 2017, a 25% tax charge will apply on transfers to QROPS, if:

• the member does not provide the scheme administrator with all the prescribed information before the transfer is made.
• none of the exclusion conditions (see below) are met; or
• from 6 April 2024 one of the exclusions is met, but the transferred value exceeds the individual's overseas transfer allowance

Exclusions

• The individual is resident in the same country in which the QROPS is established.
• The QROPS is set up by an international organisation for the purpose of providing benefits for or in respect of past service as an employee of the organisation and the individual is an employee of that international organisation.
• The QROPS is an overseas public service pension scheme, and the individual is an employee of an employer that participates in the scheme.
• The QROPS is an occupational pension scheme, and the individual is an employee of a sponsoring employer under the scheme.

There was also an exclusion if the individual was resident in the UK, Gibraltar or a country with the European Economic Area (EEA) and the QROPS was established in Gibraltar or a country within the EEA. This was removed for transfers made on or after 30 October 2024 by the Budget on the same date. This means individuals must be resident in the same country in which the QROPS is established to transfer without an overseas transfer charge, unless at least one of the other conditions is met.

HMRC Pensions Tax Manual PTM101999 - Transfers to a QROPS: contents

Within 30 days of the request, the UK scheme administrator must collect information from the individual to allow the transfer to proceed. This can be done using form APSS263. The individual then has 60 days to provide this information. If they don’t, the UK scheme administrator must deduct the overseas transfer charge if the transfer proceeds.

The charge also applies if someone is exempt at the outset, but their circumstances change during the ‘relevant period’ - which is five full tax years from the date of the transfer - so none of the exceptions apply. The reverse is also true – the charge is refunded if it’s applied at the outset, but at least one of the exceptions becomes applicable during the relevant period.

The scheme and individual have joint and several liability for the charge. This means the scheme should deduct and pay the charge to HMRC. But if it doesn’t, the individual will end up paying the charge via self-assessment. 

HMRC Pensions Tax Manual PTM102200 - Essential principles of the overseas transfer charge 

When the overseas transfer charge applies due to benefits exceeding the overseas transfer allowance AND the overseas transfer charge applies, the 25% charge only applies once to the benefits being transferred. 

Who is liable for the overseas transfer charge? 

This depends on when the charge arises:

• Initial transfer – If the charge arises on the initial transfer, the member and the transferring scheme are ‘jointly and severally’ liable
• After initial transfer – If a charge arises after the initial transfer, the liability passes to the scheme that accepted the transfer along with the member.

Payment of benefits from the QROPS

When a pension or lump sum is paid to a UK resident from a QROPS, all the pension income is chargeable to UK tax, in the same way as it would if it had been paid from a UK registered pension scheme. Although a lump sum may be tax-free in the UK, care is needed where it is paid from a QROPS because it may be taxed as pension income under the rules of the country in which the QROPS is established.

HMRC Pensions Tax Manual PTM102000 - Transfers from a registered pension scheme to a QROPS  

Payments out of funds transferred to a QROPS on or after 6 April 2017 are subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident.  

HMRC Pensions Tax Manual - PTM112010 Tax on pension payments  

The pension age test was also amended so if benefits are paid from a QROPS before the normal minimum pension age of 55 (57 in 2028), they're treated as an authorised payment in the same way as it would be if payment is made from a UK registered pension scheme (for example under serious ill-health).  

HMRC Pensions Tax Manual PTM112300 What is a recognised overseas pension scheme – Pension Age Test  

It's not possible for a pension commencement lump sum to be paid first by the QROPS, then by the UK registered pension scheme if it has been transferred back to the UK.  

HMRC Pensions Tax Manual - PTM103500 Transfers to a registered pension scheme from a QROPS or former QROPS 

QROPS scheme manager's requirements when benefits are paid or transferred

The QROPS scheme manager must agree to tell HMRC when they pay benefits from the transferred fund or if they transfer the fund again. 

Any payment or transfer made in the reporting period which wouldn't have been an authorised payment or recognised transfer from a UK registered pension scheme will suffer the normal tax penalties (see below). These are referred to as member payment charges.

When the member payment charges do not apply ?

Time limits apply to the member payment charges. These are based on when the member became non-UK resident and when pension savings were transferred out of the UK pension scheme. The date when the QROPS receives the funds also has an impact on the charges. The charge only applies to funds that came from a UK pension.  

When do the member payment charges apply?

5-year non-residence rule  

This rule applies to payments made in respect of an individual's:  

• UK tax-relieved funds built up before 6 April 2017.
• Relevant transfer funds.
• Ring-fenced transfer funds with a key date earlier than 6 April 2017.  

For payments from these types of funds the member payment charges do not apply if both:  

• At the time the payment is made (or is treated as made) the individual is not UK resident. 
• They were neither UK resident earlier in the tax year nor UK resident in any of the 5 previous tax years.  

5 years from transfer rule

For payments made in respect of a ring-fenced transfer fund with a key date of 6 April 2017 or later, the member payment charges apply for a period of 5 years beginning with the key date for the ring-fenced transfer fund.

This means that even if the individual has been non-resident for longer than 10 full tax years the member payment charges can still apply if it is less than 5 years since the funds were transferred from a registered pension scheme.

Definitions of terms can be found in HMRC Pensions Tax Manual – PTM113230: International: UK tax charges on non-UK schemes: the member payment charges

As a transfer to a qualifying recognised overseas pension scheme is a 'permitted transfer', enhanced or fixed protection will not be lost on such a transfer.  

The UK scheme administrator must report the transfer to HMRC (they would also have to report a non-recognised transfer). 

10-year non-residence rule 

This rule applies to payments made in respect of an individual’s:

• UK tax-relieved funds built up after 5 April 2017.
• Ring-fenced transfer funds with a key date of 6 April 2017 or later.

The member payment charges do not apply to payments from these types of funds if both:

• At the time the payment is made (or is treated as made) the individual is not UK resident.
• The individual was neither UK resident earlier in the tax year nor UK resident in any of the 10 previous tax years.  

Transferring overseas pensions to a UK registered pension scheme

Almost all pension transfers from overseas pension schemes to UK registered pension schemes are allowable and treated in a similar way to recognised transfers. However, a registered pension scheme isn't obliged to accept the transfer.

Overseas transfers into registered pension schemes aren't recognised transfers. But they aren't unauthorised payments either. This is because unauthorised payments can only come from UK registered pension schemes. The transfer doesn't count as a contribution and therefore doesn't get tax relief and doesn't count against the annual allowance.

Before 6 April 2024, if the transfer was from a QROPS or former QROPS, the individual's lifetime allowance could be enhanced by the same percentage as the transfer value bears to the standard lifetime allowance at the time of the transfer.

For example, let's take John who has a transfer of £107,310 from a recognised overseas pension scheme during 2023/24. His personal lifetime allowance will have been 10% higher than the standard lifetime allowance (£107,310/£1,073,100). This recognises the fact that the transferred funds haven't received any tax advantages from HMRC. 

An individual had up to five years from 31 January following the tax year in which the transfer is made, or 5 April 2025 if earlier, to claim this enhancement by registering it with HMRC. In our example, John had until 5 April 2025 to register his claim to an enhancement to his lifetime allowance. It's important to note that this enhancement was only available if the transfer had been from a recognised overseas pension scheme - if it wasn't a recognised scheme, the enhancement couldn't have been claimed.

HMRC Pensions Tax Manual: PTM175210 - Lump sum allowance and lump sum and death benefit allowance: Enhancement factors: Recognised overseas scheme transfer factor: Overview