UK Budget 2017 - New Tax Charges for Overseas Pensions
Posted on: 04 April 2017 by Liam Voors
How has the UK 2017 Budget effected overseas pensions, and what are the new tax charges?
25%. That’s the new rate of tax issued by the British Government on qualified recognized overseas pension schemes (QROPS), and one of the most hated numbers from one to one-thousand by millions of current and would-be British expats. The new UK budget for 2017 has placed a hefty cost on many citizens living overseas, together with a large headache.
Who the New Tax Effects
The new tax is rather selective in whom it targets. British citizens living in the European Economic Area, Malta, Australia, and New Zealand will not be subject to the tax. Those living elsewhere, in Asia, Africa, the Middle-East, or the Americas however, are out of luck.
For those in the supposedly unaffected areas who believe themselves beyond the grasp of the taxman it should also be remembered that the government’s new policy also requires both the individual and the pension scheme to be in the same country in order for the tax to be relaxed.
New Tax Details and Exemptions
The tax will take effect on April 6th, 2017 and be deducted before the transfer to the overseas nation at the rate of 25%. Payments out of funds transferred to a QROPS on or after that date will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident
According to the government policy paper the exemptions to the tax can only occur if one of the following apply:
- Both the individual and the QROPS are in the same country after the transfer
- The QROPS is in one country in the EEA
- The QROPS is an occupational pension scheme sponsored by the individual’s employer
- The QROPS is an overseas public service pension scheme and the individual is employed by one of the employers participating in the scheme
- - The QROPS is a pension scheme established by an international organization to provide benefits in respect of past service and the individual is employed by that international organization
The Implications of the Tax
The government has said it expects the tax to gain it 60 million pound by 2021 to 2022. Apart from the bulge in the taxman’s bag, the government has also claimed that the tax is aimed to “create fairness in the tax system.” Many view it as anything but, especially in view of the tax’s total relaxation to expats living in the European Economic Area, Australia, and New Zealand. With Brexit now less than two years away, Britons in Europe may be wise to worry about tax changes to their schemes in the future should the negotiations turn sour.
To many, the tax is also part of an overall assault on the self-employed as National Insurance Contributions on the self employed are also rising from 9% to 11%. Another point of view on the tax, from the retiree’s perspective, sees it as an unfair restriction on freedom and independence by the government, pushing retirees to spend their later years at home or areas with close ties to the United Kingdom.
While the greatest numbers of British expats live in Europe and Oceania, millions of others live in the hot spots of the US, Canada, South Africa, and Hong Kong. Historic links to those locations are maintained by human connection and are certain to be damaged by favoritism toward Europe and Australia. The onset of this tax may force many to consider relocation to the United Kingdom or to the European and Oceanic countries unaffected by the 2017 Budget changes.