The Overseas Transfer Allowance was one of three new allowances introduced on 6th April 2024 to replace the previous Lifetime Allowance.
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What is the Overseas Transfer Allowance (OTA)?
Further to the abolition of the Lifetime Allowance three new allowances were introduced to limit the tax privileged amounts that could be taken from UK pension schemes.
The Overseas Transfer Allowance was introduced to replace what was previously BCE8 - transfers to Qualifying Recognised Overseas Pension Schemes.
The Overseas Transfer Allowance only applies to transfers that are not liable to the Overseas Transfer charge which is explained in our Transfer to or from QROPS article.
The taxation is being linked to the existing overseas transfer charge (OTC). Any transfer to a QROPS that is not subject to the existing OTC will be tested against the OTA.
Where a relevant transfer exceeds the available OTA there is a charge of 25% on the excess.
What level is the allowance and how is it used up?
The OTA is set at the same level as the individual's Lump Sum and Death Benefit Allowance.
It is the level before any deductions are made. The levels are included in our Lump Sum and Death Benefit Allowance Article.
The OTA for those with no protection is £1,073,100.
From 6th April 2024 the allowance is only reduced by two things:
- a transitional amount based on the LTA previously used amount as at 5th April 2024 e.g. if 50% of LTA has been used then the OTA is reduced by 50%, and
- the aggregate of relevant transfers to a QROPS after 5th April 2024.
if the member has a pre-commencement pension that was never tested under the LTA regime, an amount of 25 times the pension in payment at the time of the overseas transfer.
Pensions placed into drawdown in the UK under the LTA regime will reduce the OTA by an amount equal to 100% of the value of their LTA used as at 6 April 2024 as per HMRC Lifetime Allowance Guidance Newsletter March 2024
How does the Overseas Transfer Allowance interact with the other allowances?
Quite simply, it didn't until 29/06/2026! Below summarises the position pre and post that date.
From 6/4/2024 until 28/06/2026
Unlike the BCE 8 under the LTA regime, which used up the LTA available for any future UK pension benefits, using the OTA does not use up LSA or LSDBA, and vice versa.
The overseas scheme has it's own LSA and LSDBA which is only reduced by tax free payments from the overseas scheme. Likewise the UK allowances are not reduced by any tax free amounts paid from the overseas scheme.
In the lead up to the abolition of the LTA this non interaction of the two regimes led to a concept known as "Double Bubble". So called, down to the fact that someone who had never taken any benefits before would be able to get two tax free lump sums of £268,275. However it is important to note the residency rules that need to be met to be able to use the OTA, more information is available here. It is also important to remember that another jurisdiction may not recognise the UK tax free status of PCLS for those who are resident there.
On or after 29/06/2026
On 25/06/2026 Statutory Instrument 2026/098 came into force., altering some of the legislation that was enacted to remove the Lifetime Allowance.
This altered the calculation of the availability of both the Lump Sum Allowance (LSA) and Lump Sum and Death Benefits Allowance (LSDBA) if benefits equivalent to Relevant Benefit Crystallisation Events (RBCE's) are taken from overseas schemes that have benefitted from UK tax relief. Commonly this will be where a UK pension has been transferred overseas, or if contributions by or on behalf of the member of the overseas scheme benefitted from UK tax relief.
This means that for the individuals LSA and LSDBA taking benefits in an equivalent form to a Pension Commencement Lump Sum (PCLS) or the tax free element from an Uncrystallised Funds Pension Lump Sum (UFPLS) will reduce both of the allowances for pensions that remain in the UK.
As well as the above the available LSDBA will be reduced by taking overseas benefits in the equivalent form of a Serious Ill Health Lump Sum or any lump sum death benefit, other than a charity lump sum death benefit or a trivial commutation lump sum death benefit
Related
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Transfer to or from Qualifying Recognised Overseas Pension schemes
06 Apr 26
8 min read
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Lump Sum Allowance (LSA)
06 Apr 26
10 min read
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Lump Sum and Death Benefit Allowance (LSDBA)
06 Apr 25
10 min read
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