If you’re considering transferring your UK pension overseas, the recent changes to QROPS rules could significantly impact your retirement plans—especially if you’re heading to popular destinations like France, Portugal or Spain.
From 30 October 2024, the UK government has removed the exemption from the Overseas Transfer Charge (OTC) for transfers to QROPS (Qualifying Recognised Overseas Pension Schemes) in the EEA and Gibraltar.
In this article, I’ll explain what these changes mean, how they affect QROPS transfers in the EU, and why timing is critical if you want to avoid costly tax charges.
HMRC hopes that aligning the treatment of transfers to QROPS established in the EEA and Gibraltar with that of transfers to QROPS established in the rest of the world will help to ensure that some UK residents do not benefit from a double tax-free allowance whilst remaining in the UK, and reduces the risk of around £1 billion of UK tax-relieved pension savings being transferred overseas.
What Is A QROPS?
A QROPS is a pension scheme based outside the UK that meets specific HMRC requirements.
It allows UK pension holders to transfer their pension overseas while potentially benefiting from greater tax efficiency, flexible investment options, and simplified inheritance planning.
For retirees moving abroad, particularly to countries in the EU such as France, Portugal and Spain, transferring a pension to a QROPS has been a popular choice.
However, the new QROPS rules will impose stricter tax conditions on these transfers, making proper planning more important than ever.
What Is the Overseas Transfer Charge?
The Overseas Transfer Charge (OTC) was introduced in 2017 to address concerns about individuals avoiding UK tax on their pension savings by transferring to a QROPS.
It is a 25% tax on the transfer amount unless certain conditions are met.
Under the old rules, the tax didn’t apply if:
- You lived in the same country where the QROPS was located.
- The QROPS was based in Gibraltar or an EEA country, and you were a resident of either the UK or another EEA country.
- The QROPS was tied to specific employment, like public service or international organizations, and you worked for an eligible employer.
This has made QROPS a tax-efficient option for retirees moving to Spain or other EEA countries.
What’s Changing:
From 30 October 2024, the exemption for those living in EEA countries like France, Portugal and Spain has been removed.
Why Are the Rules Changing?
The UK government is removing the exemption to ensure consistency across all overseas pension transfers.
They are also looking to prevent retirees in the UK from benefiting from double tax-free cash allowances.
How the QROPS Rule Changes Could Impact Your Retirement: A Case Study
To illustrate the financial impact of these changes, let’s look at a hypothetical example.
Meet John and Luisa: Planning Their Retirement in Spain
John, 65, is a UK citizen with a SIPP worth £800,000.
He and his wife Luisa, a Spanish national, plan to retire to Spain.
To ensure tax efficiency, John is considering transferring his pension to a QROPS in Malta, a popular choice for expats retiring to Spain.
John’s Plan Under the Old QROPS Rules
Before 30 October 2024, John could transfer his pension to a Malta QROPS without paying the Overseas Transfer Charge (OTC) because he would reside in Spain, an EEA country.
John’s Plan Under the New QROPS Rules
From 30 October 2024, John’s transfer will no longer be exempt from the OTC.
Financial Impact:
- OTC Applied: £800,000 x 25% = £200,000 tax deduction.
- Remaining Pension Value: £600,000.
This significant reduction in his pension value will affect his retirement lifestyle and financial security in Spain.
John’s Options for a Pension Transfer Overseas After The Deadline
- Keep His Pension in the UK: John would need to bear in mind the Spanish tax implications of drawing from a UK pension. He would also need to consider the changes to UK inheritance tax rules regarding pensions announced in the recent budget.
- Spanish-Compliant Investment Solutions: These local solutions are tailored to Spanish tax laws and may provide better long-term benefits than a QROPS or a UK pension.
Can I Still Transfer My Pension Overseas?
Yes, but the new rules mean careful planning is essential.
If you’re considering a pension transfer overseas, the QROPS rules after 30 October 2024 may reduce the financial benefits of such a move.
However, with expert QROPS advice, you can evaluate your options and make informed decisions.
Get Expert QROPS Advice Today
If you’re planning to retire to Spain or another overseas destination, the new Overseas Transfer Charge rules could significantly impact your retirement savings.
Contact us today for tailored QROPS advice to ensure your pension is structured to maximise your retirement income and minimise your tax burden.
Further Reading
QROPS Explained: How the 5-Year Rule Affects Your Overseas Pension
