Tax implications of pension transfers?

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Transferring a pension in the UK as of November 2024 involves several tax implications, particularly if the transfer is to a Qualifying Recognised Overseas Pension Scheme (QROPS). Here are the key points to consider:

Overseas Transfer Charge (OTC)

25% Charge: A 25% Overseas Transfer Charge (OTC) applies to transfers to QROPS unless specific exclusions are met. This charge was reintroduced in the 2024 Autumn Budget.
Exclusions: The exclusion from the OTC for transfers to QROPS established in the European Economic Area (EEA) and Gibraltar was removed as of 30 October 2024. This means that transfers to QROPS in these regions will now be subject to the 25% OTC.

Tax Rules for Transfers

UK Tax Rules: Payments out of funds transferred to a QROPS on or after 6 April 2017 are subject to UK tax rules for five tax years after the date of transfer. This applies even if the individual returns to the UK within this period.
Tax-Free Allowances: The UK allows a one-time tax-free withdrawal of up to 25% on pensions, up to £1,073,100. This is known as the Pension Commencement Lump Sum (PCLS). The remaining 75% is taxed at standard personal income tax rates upon distribution.

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Changes from 6 April 2025

Regulatory Alignment: From 6 April 2025, QROPS established in the EEA will need to meet the same conditions as those established elsewhere. This includes being regulated by a pension scheme regulator in the country and having a Tax Information Exchange Agreement with the UK.
Scheme Administrators: From 6 April 2026, scheme administrators of registered pension schemes must be UK residents.

Additional Considerations

Double Taxation: The US-UK tax treaty includes provisions to avoid double taxation on pension distributions. For instance,

Tax implications of pension transfers?

Preview

Overseas Transfer Charge (OTC)

25% Charge: A 25% Overseas Transfer Charge (OTC) applies to transfers to QROPS unless specific exclusions are met. This charge was reintroduced in the 2024 Autumn Budget.
Exclusions: The exclusion from the OTC for transfers to QROPS established in the European Economic Area (EEA) and Gibraltar was removed as of 30 October 2024. This means that transfers to QROPS in these regions will now be subject to the 25% OTC.

Tax Rules for Transfers

UK Tax Rules: Payments out of funds transferred to a QROPS on or after 6 April 2017 are subject to UK tax rules for five tax years after the date of transfer. This applies even if the individual returns to the UK within this period.
Tax-Free Allowances: The UK allows a one-time tax-free withdrawal of up to 25% on pensions, up to £1,073,100. This is known as the Pension Commencement Lump Sum (PCLS). The remaining 75% is taxed at standard personal income tax rates upon distribution.

Preview

Changes from 6 April 2025

Regulatory Alignment: From 6 April 2025, QROPS established in the EEA will need to meet the same conditions as those established elsewhere. This includes being regulated by a pension scheme regulator in the country and having a Tax Information Exchange Agreement with the UK.
Scheme Administrators: From 6 April 2026, scheme administrators of registered pension schemes must be UK residents.

Additional Considerations

Double Taxation: The US-UK tax treaty includes provisions to avoid double taxation on pension distributions. For instance,