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Pensions

Overseas Transfer Allowance (OTA)

Last Updated: 6 Apr 26 10 min read

The Overseas Transfer Allowance was one of three new allowances introduced on 6th April 2024 to replace the previous Lifetime Allowance.

Contents

1. What is the Overseas Transfer Allowance?

2. What level is the allowance and how is it used up?

3. How does the Overseas Transfer Allowance interact with the other allowances?

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:

  1. 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
  2. the aggregate of relevant transfers to a QROPS after 5th April 2024.
  3. 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 educe 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 doesn't!

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. 

 

Example

Roy does not have any protections. 

He had used up 60% of the LTA at 5th April 2024.

This leaves Roy with a LSA of £107,310.

Roy has uncrystallised funds of £900,000 remaining. As he is limited to 25% tax free he only needs to vest £429,240 to use up his LSA.

His OTA is reduced by 60% to £429,240. 

He has £470,760 of uncrystallised money.

Roy could transfer up to his OTA overseas thus giving him an extra £107,310 in tax free cash. 

Roy should however be mindful of the increased requirements for a transfer to an overseas scheme not to become liable to the overseas transfer charge

 

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