A proposed new 25 per cent tax charge on moving funds overseas from a UK registered pension scheme should have additional exemptions for people who are genuinely moving overseas, says the Chartered Institute of Taxation (CIOT).
In last week’s Budget, British chancellor Philip Hammond that transfers of UK tax-relieved pension funds to overseas schemes will be subject to a 25 per cent tax charge on transfer with immediate effect. This is unless, at the point of transfer, both the individual and the pension savings are in the same country, both are within the European Economic Area (EEA) or the Qualifying Recognised Overseas Pension Scheme (QROPS) is provided by the individual’s employer.
Colin Ben-Nathan, Chair of the CIOT’s Employment Taxes Sub-committee, said: “In imposing a 25 per cent tax charge on transfer, the Government appears to want to dissuade individuals from transferring their pension savings from UK schemes to overseas schemes that are perhaps aimed at letting savers have early access to their money tax-free. Such a move by the Government to tackle pension liberation schemes is understandable.
“In many cases, however, there will be genuine reasons for wanting to move pension funds outside of the UK, e.g. emigration, full-time working abroad, etc. What is needed therefore is some flexibility to permit tax-free transfers in appropriate cases.”
While Ben-Nathan said the exemptions to the tax charge were welcome, he believes more could be done to safeguard a greater number of British people.
“The CIOT is concerned that they [the exemptions] are not wide enough,” he explains. “While there may be relatively small numbers of people unfairly affected, the impact on each such individual could be very significant. As an example, a tax-free transfer from the UK would become taxable in the UK if within five years the individual ceased to be resident in the country to which the pension funds were transferred. We think that to allow internationally mobile workers to freely move between countries without incurring a tax charge on their former UK pension savings, the Government should consider extending the exemptions to include transfers to the country of which the individual is a citizen.”
Article published 13th March 2017