Transferring UK pensions overseas

When a transfer occurs a tax charge may apply in two circumstances.

The overseas transfer charge

A recognised transfer from a registered pension scheme to a QROPS may be subject to the overseas transfer charge. Unless one of the four exemptions outlined below are met the transfer will be taxable. 

If the overseas transfer charge applies it is set at 25% of the “transferred value”. Details of what constitutes the transferred value are set out in HMRC’s Pensions Tax Manual PTM102500. The scheme member and the scheme administrator are jointly and severally liable to the tax charge. The tax charge on the transfer should be deducted by the scheme before the transfer. 

Exemptions to the overseas transfer charge

On transferring from a registered pension scheme to a QROPS, the transfer charge will apply unless one of the following conditions are met:

• both the individual and the QROPS are in the same country after the transfer.
• the QROPS is an occupational pension scheme sponsored by the individual’s employer.
• the QROPS is 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 is a pension scheme established by an international organisation as defined at regulation 2(4) of S.I. 2006/206 to provide benefits for, or in respect of, past service and the individual is employed by that international organisation. HMRC’s Pensions Tax Manual PTM112200 provides guidance on the definition of an international organisation.

Note that the rules changed in the October 2024 Budget.  Transfers requested before 30 October 2024 and the QROPS is in one country in the EEA (an EU Member State, Norway, Iceland or Liechtenstein) or Gibraltar and the individual is resident in the UK or resident in another EEA country or Gibraltar were also exempt.

For the exemption to apply, the member must provide the scheme administrator with the required information in relation to the exemption before the transfer.

If the position changes within five tax years after the transfer, the transfer charge may be levied (where it had been exempt at the time of transfer), or reclaimed from HMRC (if it was paid, but is now found to be exempt).     

If the transfer charge does not apply as a result of an exemption noted above, a check must be made against the member’s available overseas transfer allowance.

The overseas transfer allowance 

The overseas transfer allowance was introduced after the abolition of the lifetime allowance on 6 April 2024. The overseas transfer allowance is set at the same level as the lump sum and death benefit allowance – currently £1,073,100 for those with no protection. 

Where the overseas transfer charge does not apply to an overseas transfer, a check against the member’s available overseas transfer allowance must be made. Any transfer in excess of the member’s available overseas transfer allowance is subject to a tax charge of 25%.

The member’s overseas transfer allowance is reduced by:

• An amount equal to 100%* of their lifetime allowance as used before 6 April 2024 for the first relevant transfer to a QROPS on or after 6 April 2024, and
• Any recognised transfer from a registered pension scheme to a QROPs, and
• A transfer of UK tax-relieved funds from a relieved RNUKS to a QROPS, where that transfer is not a block transfer, and
• Onward transfer of funds in relation to which the original transfer was a block transfer form a relieved RNUKS.

*Where the transfer is in respect of drawdown funds crystallised before 6 April 2024, there is an adjustment to reflect the funds were previously tested against the lifetime allowance.

Example 

Sophie wants to make a transfer of £200,000 of uncrystallised funds from her registered pension scheme to a QROPS in July 2025. This is the first transfer to a QROPS that Sophie has made.

Before 6 April 2024, she had used up 70% of her standard lifetime allowance. This means that the amount of lifetime allowance used is:

£1,073,100 x 70% = £751,170.

Her available overseas transfer allowance before making this transfer is:

£1,073,100 - £643,860 = £321,930.

After making this transfer, Sophie remining overseas transfer allowance is:

£321,930,240 - £200,000 = £121,930.

The registered pension scheme administrator must tell Sophie the amount of overseas transfer allowance used up by the transfer and if any overseas transfer charge is due.