(News Update) Budget Blog
By recent standards the Spring Budget was a low-key affair, however there was welcome news from the Chancellor. This was slightly dampened by an announcement from the Pensions and Savings Team at HM Treasury.
The introduction by the Chancellor of a 25% transfer charge on certain transfers to Qualifying Recognised Overseas Pension Schemes (QROPS) targeted at those abusing the system is good news. Ordinary working pension scheme members benefit enormously from pensions tax relief and the tiny minority should not be allowed to spoil the benefit for everyone else.
QROPS transfers have been increasingly popular for expatriates and those looking to emigrate. Some UK residents also use QROPS transfers in their tax planning, however there have been instances of individuals using this approach as a method of tax avoidance.
We have seen a tightening of rules surrounding QROPS transfers in recent years, but this new tax charge is the most aggressive. Exceptions will apply to the charge allowing transfers to be made tax-free where people have a genuine need to transfer their pension and meet set criteria.
If the transfer doesn’t meet the criteria, a 25% tax charge will be deducted by the scheme administrator of the transferring scheme. It applies to all QROPS transfers from today so procedure changes are required now!
HMT also announced the outcome of its consultation into ‘Reducing the Money Purchase Annual Allowance’. It was disappointing to see confirmation that the MPAA will reduce to £4,000 from April 2017. This will impact a growing number of individuals who are working for longer and phasing in their retirement, whilst drawing down from their DC pots utilising the pension freedoms. The reduction to £4,000 will restrict them from replenishing their pension fund and many workers may find themselves in a position of being unable to take full advantage of their employer’s workplace pension.
Renny Biggins
TISA Pensions Technical Officer
Website: www.tisa.uk.com