The tax income on pension transfers from UK pension schemes to Qualifying Recognised Overseas Pension Schemes in 2018/19 was well below government estimates, reveals Canada Life
The amount of tax received on pension transfers from UK pension schemes to Qualifying Recognised Overseas Pension Schemes (QROPS) in 2018/19 was way below government estimates, Canada Life has revealed.
QROPS are used by people who are moving abroad and looking to transfer their UK pension scheme.
According to a Freedom of Information request, there were 24 overseas transfer charges paid to HMRC in 2018/19, worth £760,846, representing a 46 per cent fall in revenue and a 20 per cent reduction in transfers compared to 2017/18.
Government figures suggested that the tax on these transfers would raise £65m for the Exchequer in 2017/18 and £60m in 2018/19.
In the March 2017 budget, then-Chancellor Phillip Hammond introduced a 25 per cent tax charge on transfers to QROPS in countries outside the European Economic Area (EEA), hoping to discourage transfers from UK schemes where the person is seeking to reduce their tax liability by moving their pension wealth to a new jurisdiction.
Commenting, Canada Life technical director, Andrew Tully said that it looks like the QROPS charge has done the job in limiting the appetite for moving pensions outside the UK to destinations other than the EEA.
Tully said the pension freedoms will also have had an effect in the general decline in the number of transfers to QROPS, simply because of the greater flexibility in how people can access their pensions in the UK.
He said that the number of pension transfers attracting a charge is a very small proportion of the overall number of transfers to QROPS, and as a result the amount of tax raised is very low. However, he thinks the Treasury will be pleased another tax loophole has effectively been closed and further tax leakage prevented.
In total, less than 0.5 per cent of QROPS transfers attract a charge, with 24 out of 5,000 transfers, worth £640m, incurring a charge in 2018/19.