Switching cash from a UK pension to a QROPS is not a lottery – the process is governed by strict rules.
The transfer process is designed to stop UK funds switching money overseas to unverified accounts and includes stiff financial penalties for administrators who fail to keep to the rules.
HM Revenue & Customs manages transfers and keeps track of QROPS pensions worldwide.
Any receiving QROPS should be included on the latest HMRC QROPS list which is published at least once a month and can be downloaded from the HMRC’s website.
HMRC does not ‘approve’ pensions on the list, but schemes self-certify they meet QROPS rules.
If HMRC removes any QROPS from the list if they fail to meet the rules or their QROPS status is in doubt.
Pension administrators can only send funds to a verified QROPS.
Not all QROPS are listed – but if a scheme claims to be a QROPS and is not on the list, the pension administrator sending funds must write to HMRC to confirm the details before releasing any money.
HMRC can only confirm the QROPS status of the pension if the receiving scheme administrator writes to HMRC confirming they can release information to you or your representative – in this case the pension transferring the fund.
Tax relief on QROPS transfers
If the transfer fund includes tax-relieved contributions, this relief is passed in full to the receiving QROPS, so the investor does not miss out on any UK tax relief already amassed.
However, QROPS pensions do not receive UK tax relief on contributions or transfers, so the fund receives no further relief on transfer as HMRC sees this merely as relocation between accounts rather than new money received in to a UK fund.
As the transfer is not a contribution, any remaining annual allowance is transferred with the pension rather than resetting the account to zero.
The transfer is a benefit crystallisation event for the investor’s lifetime allowance. The amount crystallised equals the transfer amount.
If the transfer exceeds the member’s lifetime allowance, tax is chargeable at a rate of 25%.
Taking benefits from a fund transferred in to a QROPS is not a benefit crystallisation event in relation to the individual’s lifetime allowance.