Why has Chancellor Philip Hammond clamped down on QROPS in the Spring Budget?
For many years now, people with pension pots built up through schemes in the UK – either through an employer or their own personal savings – have had the ability, once retired, to transfer them from the UK for the opportunity to gain control of their own pot and receive more favourable tax treatment.
This has been very expensive for the UK economy and has resulted in billions of pounds in taxes not going back into the HMRC coffers that, over previous decades, have been budgeted for.
If you were saving into a pension pot in the UK, you were getting very generous tax relief for doing so. Reliefs being received could add up to as much as 50% for the self-employed, as contributions were treated as business expenses. Through company pension schemes, the gross amount of contributions were deducted from earnings before a tax calculation was made so you would get relief at your highest marginal rate (40%+) and even save on National Insurance contributions. Even non-taxpayers could get a 25% relief on contributions through stakeholder schemes of up to a £3,600 per annum contribution in the last 20 years or so. All this added up to a very hefty tax bill for the Governmen,t with the expectation they would get it back in the future once people started drawing on their pensions.
To stop this massive outflow of projected tax income, Mr Hammond has taken the first steps in trying to prevent this by introducing a 25% tax on pension transfers into QROPS (Qualifying Retirement Overseas Pension Schemes). This will only effect a handful of the 10,000+ QROPS applications per year but it is expected to net the government around £300 million over the next five years.
At the moment, this will not affect people in Spain transferring to an EEA-based scheme, but with Brexit around the corner it may only be a matter of time before this clamp down goes even further. I would encourage any expat in Spain that has a pension pot in the UK to seriously take a look at their options now while they still can.
In today’s financial climate it is essential you do everything you can to make sure your money is safe and secure so that what you want to transpire in the future has the best chance of happening. Contact me today to find out more.