Guest Comment: Repayment of the overseas transfer charge

In March 2017, the government introduced the Overseas Transfer Charge (OTC). This is a tax charge of 25 per cent of the transferred value that applies to any transfer from a registered pension scheme to an overseas scheme (unless one or more of five exclusion conditions is met).

One of the features of the OTC is that it can become repayable if either (1) the charge was paid in error, or (2) the member’s circumstances change in the so-called ‘relevant period’.

HMRC published two sets of regulations in April of this year, one of which sets out the conditions and process for claiming a repayment of the OTC, while the other makes the necessary changes to the existing QROPS information requirements.

Revised HMRC guidance on claiming and reporting repayments of the OTC is expected in due course.

Where the OTC is repaid to the administrator of a registered pension scheme, it should be used to provide the member with benefits, or a transfer, in accordance with the rules of that scheme.

The reality is that the volume of overseas transfers has significantly declined since the introduction of the OTC. However, where the charge was deducted by a registered pension scheme, it is the scheme that will have reclaim it should it become repayable.

This will mean additional work and costs (not to mention those involved in providing the member with additional benefits or a further transfer) and all in relation to someone who, until recently, the scheme regarded as a ‘no liability’ member!

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