When the UK government abolished the Lifetime Allowance (LTA), it created a loophole, allowing pension members to transfer their pension savings to overseas qualifying areas. This meant some people benefited by doubling their tax-free cash allowance.
Transfers to qualifying recognised overseas pension schemes (QROPS) when the individual remained in the UK and their funds were transferred to the European Economic Area or Gibraltar were briefly exempt from the 25% overseas transfer charge.
This meant you could transfer overseas up to £1,073,100 without charge. Once the funds were out of the country, you could then access your 25% tax-free cash lump sum.
In short, the loophole allowed you to:
- Leave up to £1,073,100 in your UK pension
- Transfer the remaining funds to a QROPS
- Take a tax-free lump sum of up to £268,275 from your UK scheme
- Enjoy a second tax-free cash entitlement from your overseas scheme.
In the Autumn Budget, the Labour government closed this loophole. As a result, from 30 October 2024, transfers to QROPS in the European Economic Area or Gibraltar are subject to 25% tax.
Figures indicate that many people took advantage of the opportunity
While the loophole existed, people took strong advantage. In fact, according to HMRC, during 2022/23 there were 3,300 QROPS transfers. In 2023/24, this sum reached 7,100 – more than double the number in the previous year.
These figures are noteworthy enough, but the value being transferred was also significantly up – going from £680 million to £1.4 billion.
With the loophole now closed, the government expect that the new tax treatment could raise up to £5 million a year in revenue for the UK.
What this may mean for you and your pension
If you retire abroad and transfer your pension outside a QROPS, these new rules may affect you. You may have to decide between keeping your pension in the UK or paying the 25% tax charge when you transfer your funds.
Many UK pension schemes aren’t equipped to make payments to bank accounts held outside the UK. If your pension provider is among them, this could leave you in a tricky position.
In the event that you are able to have payments made in a different currency, you’ll need to weigh up the costs of currency risk v transferring your pension to your new country of residence and paying 25% tax.
An international SIPP could be the answer
In light of all of this, you might benefit from transferring your UK pension to a self-invested personal pension (SIPP).
A SIPP offers a high degree of flexibility, allowing you to invest your retirement savings in a wide range of assets, while also providing numerous ways to access your money.
Better still, you can often hold multiple currencies in a SIPP. This can help to eliminate concerns around currency fluctuations when you come to draw on your retirement savings.
If you're a member of more than one UK pension scheme, you can use a SIPP to consolidate them into a single pension plan. This could help to reduce the admin required to stay on top of your savings and could even reduce the fees you’re paying.
Read more: Pros and cons of combining your pension pots. Is it the best move for you?
Your pension savings may be among your most valuable assets. So, make sure you protect it by doing as much research into the advantages and disadvantages of a pension transfer as possible before taking any action.
If you’d like to discuss your situation, we are here to offer advice and answer any questions you may have.
Get in touch
Your pension may be just one of many assets that you need to consider when you move abroad.
Our expert advisers are fully licensed and regulated in both the UK and Europe and can help with the practicalities of understanding all your options to ensure you can enjoy an efficient income in retirement, no matter where you live.
Email enquiries@alexanderpeter.com or give us a call on +44 1689 493455.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.
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