Transfer to or from Qualifying Recognised Overseas Pension schemes

Discover the main considerations when transferring a pension to or from a Qualifying Recognised Overseas Pension Scheme.

What is a QROPS?

A Qualifying Recognised Overseas Pension Scheme (QROPS) is a recognised overseas pension scheme which has provided information and evidence to HMRC that:

• the scheme satisfies all the requirements as described for a recognised overseas scheme, and
  
  
• has undertaken to notify the HMRC if the scheme ceases to be a recognised overseas scheme and supply them with information when making certain payments.

The scheme must not have been excluded from being a QROPS. Exclusion may happen if the scheme fails to comply with any of the HMRC requirements. If this happens the HMRC must inform the scheme manager within 30 days. There is an option to appeal this decision.

HMRC has published a list of ROP schemes. This list is published twice a month and should be checked before a transfer to an overseas scheme is considered. A scheme's name will be deleted from the list as a matter of urgency if it ceases to be a ROPS. Due to HMRC confidentiality rules the list does not include those schemes which have not consented to being listed.

It should be noted that although a scheme may be recognised as a QROPS, local tax laws may not permit a transfer in.

Read more about QROPS in the HMRC’s Pensions Tax Manual.

If the QROPS (or Former QROPS) being transferred in is already in payment

If the overseas scheme is in payment (i.e. the equivalent of drawdown) this will be treated as a crystallised benefit (i.e. no payment of a further PCLS).

If the pension from the QROPS/former QROPS is in the equivalent of Capped Drawdown the receiving scheme must also be on a capped drawdown basis, unless the individual chooses to convert the funds to flexi-access drawdown).

Not accepting these transfers in this manner would create an unauthorised payment with the associated tax charges applied.

Taxation of QROPS benefits

In the Autumn Statement of 2016 the government announced major plans to prevent QROPS from being misused to provide a more favourable tax position for those who do not intend to leave the UK on a long term basis.

Previously only 90% of the income from a QROPS was subject to income tax for a UK resident. Now 100% of  the income is liable to UK tax (as with UK pensions income) and this, with other changes, reduces the potential tax advantages of UK residents transferring to, or investing in QROPS.

A QROPS must tell HMRC when they make a ‘payment’ in respect of a member who has a ‘relevant transfer fund’. Payments include not just pension and lump sum payments but also any transfer out of the scheme. A relevant transfer fund is created when a member transfers in sums and assets from either:

• a UK registered pension scheme, or

• another overseas pension scheme that is a relevant non-UK scheme.

On receipt of this information HMRC will consider if the payments fall within UK member payment provisions and may take action against what they see as abuses of the system.

The QROPS needs to report any ‘payments’ (see above) to HMRC unless both the following conditions are met:

1. The payment is made more than 10 years after the day of the transfer that created the ‘relevant transfer fund’, and
   
   
2. The member is neither UK resident when the payment is made, nor UK resident in any of the previous 10 tax years. A UK tax year runs from 6 April to the following 5 April.

One of the other loopholes which was removed in the Finance Act 2017 was that of “section 615 schemes”.  A section 615 scheme was a scheme which was established by a UK employer for employees working overseas and it received special tax treatment. If these schemes closed to new contributions on 6 April 2017 then the special tax treatment remained but if they didn’t then they became Employer Financed Retirement Benefit Schemes (EFRBS).

Finance Act 2004 section 244

HMRC Pension Tax Manual PTM102000

Overseas transfer charge

This change was announced by the Chancellor in the Spring Budget 2017.  Certain transfers to QROPS, requested on or after 9 March 2017, are subject to a 25% overseas transfer charge (OTC)

From 9th March 2017 until 30th October 2024 the charge applied on the following basis:

The overseas transfer charge was applied unless at least one of the following applied:

• both the individual and the QROPS were in the same country after the transfer
  
  
• the QROPS was in a country in the EEA (an EU Member State, Norway, Iceland or Liechtenstein, in the context of this Gibraltar was considered part of the EU as part of the UK) and the individual was resident in another EEA member state after the transfer *
  
  
• the QROPS was an occupational pension scheme sponsored by the individual’s employer
  
  
• the QROPS was an overseas public service pension scheme as defined at regulation 3(1B) of S.I. 2006/206 and the individual is employed by one of the employer’s participating in the scheme
  
  
• the QROPS was a pension scheme established by an international organisation as defined at regulation 2(4) of S.I. 2006/206 to provide benefits in respect of past service and the individual is employed by that international organisation. More guidance on this is given in PTM 112200 as this does not simply mean a multi-national employer).

Finance Act 2004 section  244l

From 30th October 2024:

The OTC also applied to transfers to the EEA and Gibraltar if the member was not residing in the country in which the receiving QROPS was based unless any of the other conditions above applied. This was to remove the potential for UK resident individuals potentially benefits from an "extra" amount tax free. If a transfer was requested before 30th October 2024 and completed before 30th April 2025 the exclusion could still be applied.

PTM102300

From 6th April 2025:

Gibraltar and EEA registered QROPs lost their special status so the OTC applied unless the member is a resident of the country where the relevant QROPS is registered. This aligns the rules for Gibraltar and EEA QROPS with the rest of the world and means the QROPS must also be regulated by an authority in the country it is registered in, and that country must have a UK tax treaty, further information on this is available here.

From 6th April 2026:

The 25% OTC applies unless:

• The member lives in the same country as the QROPs is registered at the time of the transfer and remains resident there (or within the EEA if the QROPS is EEA registered)  for the 5 tax years following the transfer.  

• If the member ceases to be resident in the relevant jurisdiction within the 5 year period the QROPS must pay the required OTC to HMRC.

• the QROPS was an occupational pension scheme sponsored by the individual’s employer 
   

• the QROPS was an overseas public service pension scheme as defined at regulation 3(1B) of S.I. 2006/206 and the individual is employed by one of the employer’s participating in the scheme 
   

• the QROPS was a pension scheme established by an international organisation as defined at regulation 2(4) of S.I. 2006/206 to provide benefits in respect of past service and the individual is employed by that international organisation. More guidance on this is given in PTM 112200 as this does not simply mean a multi-national employer).

If the above conditions are met the OTC applies at 25% of the value of the transfer. If the above conditions are met the OTC applies to to any excess over a member’s Overseas Transfer Allowance. 

 PTM102200

There is more information on the Overseas Allowance in our article on the Overseas Transfer Allowance

UK tax will be refunded if the individual made a taxable transfer and within five tax years a change of circumstances means that one of the exemptions applies to the transfer.

Scheme managers of existing QROPS needed to decide whether or not they wished their scheme to continue to be a QROPS following the introduction of the overseas transfer charge. If they wished to continue they had to make an extra undertaking to HMRC to operate the overseas transfer charge by the 13 April 2017. If HMRC did not receive the revised undertaking the scheme will have ceased being a QROPS on 14 April 2017. There is no right of appeal if a scheme stopped being a QROPS in these circumstances. Payments out of funds transferred to a QROPS on or after 6 April 2017 must be reported to HMRC by the QROPS for ten tax years after the date of transfer, regardless of where the individual is resident and may be subject to UK income tax if the member was UK resident in the tax year of the income or the preceding five years.