HM Revenue and Customs (HMRC) received just £760,846 from 24 qualifying recognised overseas pension scheme (Qrops) transfer charges in the 2018/19 tax year, according to a freedom of information request by Canada Life.
This is a 46% decrease in revenue and a 20% reduction in transfers compared to the previous tax year, where 30 transfers attracted charges totalling £1.4m ($1.72, €1.56).
The sum raised is well below the government estimate from when the 25% overseas pension transfer tax charge was introduced in 2017.
Then-chancellor Philip Hammond said it would raise £65m for the Exchequer in 2017/18, £60m in 2018/19 and £60m in 2019/20.
Tax loophole closed
Andrew Tully, technical director at Canada Life, said: “It looks like the Qrops charge has done the job in limiting the appetite for moving pensions outside the UK to destinations other than the European Economic Area (EEA).
“The pension freedoms will also have had an effect in the general decline in the number of transfers to Qrops, simply because of the greater flexibility in how people can access their pensions in the UK.
“The number of pension transfers attracting a charge is a very small proportion of the overall number of transfers to Qrops, and as a result the amount of tax raised is very low.
“However, I’ve no doubt the Treasury will be pleased another tax loophole has effectively been closed and further tax leakage prevented.”
Charge introduction
In the March 2017 budget, Hammond introduced a 25% tax charge for qualifying pension transfers.
It was hoped it would discourage transfers from UK schemes where the person was seeking to reduce their tax liability by moving their pension to a different jurisdiction.
The charge applies unless the member is resident in the same country in which the Qrops is established, for example Australia, or the member is resident in a country within the EEA and the Qrops is established in a country within the EEA.
According to data from HMRC, the number of pension transfers to Qrops peaked in 2014/15 with 20,100 transfers valued at £1.76bn.
That number reduced considerably over the following tax years, with HMRC recording only 5,000 transfers worth £640m in 2018/19.
