Transfers from overseas schemes

To be a ROPS, the overseas scheme must meet the conditions to be an ‘overseas pension scheme’ and a ‘recognised overseas pension scheme’. These conditions are covered in HMRC’s Pensions Tax Manual.

A ROPS should not be confused with a QROPS. QROPS status is only relevant where funds are being transferred from a UK scheme to an overseas scheme. For the transfer to be an authorised payment, the receiving scheme must be a QROPS. Further information on QROPS can be found in the Pensions Tax Manual. You can also read more about transfers to overseas schemes in this guide.

When a transfer from an overseas scheme is accepted into a UK scheme, the transferred fund becomes subject to the UK scheme's rules regarding when and how benefits can be taken and what can be paid as pension benefits.

Some transferring schemes may ask the UK scheme to confirm that it will restrict the timeframe or way in which benefits arising from the transfer will be paid (for example, that benefits will not be paid before age 65). This is usually to comply with legislative restrictions in the home country which must ‘follow’ the funds if they are to be transferred out of the home country. If the UK scheme is unable to give that confirmation, it’s unlikely that the transfer will go ahead.

The type of benefits available from the transferred funds may also depend on whether they wholly, or partly, represent benefits that have already come into payment under the overseas pension scheme. 

A transfer from an overseas pension scheme is ignored when testing the increase in benefits or contributions paid in a pension input period. If the receiving scheme is either a defined benefit scheme or a cash balance scheme, the amount of benefits funded by the transfer payment (defined benefit) or the amount of increased rights funded by the transfer payment (cash balance) should be deducted from the closing value when calculating the increase in benefits over the pension input period.

If the receiving scheme is a money purchase scheme, the transfer value is ignored as it is not counted as a contribution for annual allowance purposes.  It is merely the relocating of pension rights from one scheme to another.

If an individual transferred funds from a ROPS to a UK scheme between 6 April 2006 and 5 April 2024 inclusive, they can apply to HMRC for an enhancement to their lump sum and death benefit allowance (LSDBA).  This enhancement is called a 'recognised overseas scheme transfer factor'.

The enhancement factor is calculated by dividing the amount of the transfer payment by £1,000,000 at the date of the transfer. If contributions made, or benefits accrued under, the ROPS received UK tax relief the transfer payment must be reduced accordingly - the amount to be deducted is called the 'relevant relievable amount'.

Note that the enhancement factor does not apply to the individual's lump sum allowance, only to the LSDBA - it does not allow the payment of additional tax-free cash to the member.

An individual who is entitled to a recognised overseas scheme transfer factor must notify HMRC using online form APSS202.  At the time of writing, the online form had not been updated to reflect the new regime.

For an enhancement to apply, notification must be received by HMRC by the earlier of:

· five years after the 31 January following the end of the tax year in which the transfer took place, and

· 5 April 2025.

This means that if the transfer took place before the 2018/19 tax year, and no notification was made under the old lifetime allowance regime, it's too late to notify HMRC and no enhancement will apply.  For transfers made in the 2018/19 tax year, notification must be made by 31 January 2025 at the latest.

The recognised overseas scheme transfer factor is worked out as follows: 

1. Calculate any relevant relievable amount as set out in HMRC's guidance. 

2. Deduct the relevant relievable amount from the transfer payment received from a ROPS after 5 April 2006. 

3. Divide the result of step 2 by £1,000,000. 

4. The result is the enhancement factor. The factor should be rounded up to two decimal places.  So, for example, 0.182 should be rounded up to 0.19.  

Example
Bob transferred £324,500 from a ROPS on 4 December 2023. He doesn't have a relevant relievable amount.  He has until 5 April 2025 to submit APSS202 to HMRC. 

£324,500 / £1,000,000 = 0.3245

Bob's recognised overseas scheme transfer factor is 0.33. 

The recognised overseas scheme transfer factor is used to calculate the LSDBA availability when a relevant benefit crystallisation event occurs. 

Recognised overseas scheme transfer factors before 6 April 2024
If an individual has a certificate from HMRC confirming that they have a recognised overseas transfer factor under the old lifetime allowance regime, that factor can be used when calculating their available LSDBA.

If an individual is granted an enhancement factor, the factor will be applied at any relevant benefit crystallisation event that takes place after the certificate has been issued. The individual will need to provide a copy of the certificate to the pension provider, or at least quote the reference number given on the certificate, so that the provider can calculate the percentage of the LSDBA used taking into account the enhancement factor.

When transferring pension arrangements between different countries, financial advice should be sought in both countries to avoid possible unforeseen tax implications.

Further information can be found in HMRC's Pensions Tax Manual.