Thousands of British citizens have been caught up in a clampdown on overseas pension transfers, which is expected to leave some facing heavy tax charges.
Pension transfers to countries popular with British expats, including Australia and New Zealand, have virtually ground to a halt while the UK authorities undertake checks on offshore pension schemes.
The freeze has been prompted by concerns that some foreign-based pension arrangements, largely outside the EU, are not meeting new UK requirements for international transfers.
To avoid hefty tax charges for transfers into unauthorised schemes, UK pensions can be moved into an offshore arrangement on HM Revenue & Customs’ list of qualifying recognised overseas pension schemes (Qrops).
But in a surprise move last week, HMRC suspended its list over concerns that not all of the 3,000 or so schemes were meeting a condition, in place from April, that they should restrict access to pension cash before the age of 55.
Advisers said the move created uncertainty for those in the process of moving their pension abroad, and who fear they will face a 55 per cent tax charge for moving their money into an unauthorised scheme.
“If they are in one of those schemes which fail to meet the new conditions they could face a significant tax charge,” said Geraint Davies, managing director of Montfort International, an international financial advisory firm.
“There are a lot of people very concerned about their position as well as many UK schemes now facing possible scheme sanction charges from HMRC.”
Mr Davies believes more than 2,000 international transfers — covering both private and public sector pension schemes — were in the pipeline when the list was suspended.
HMRC confirmed this week that it expected schemes to be culled from its list.
“We are aware that there are pension schemes that have appeared on previous lists that do not meet the pension age test, one of the requirements to be a recognised overseas pension scheme,” HMRC said.
“They will not appear on the list on its return.”
It added: “If, at any time, an overseas transfer is made to a pension scheme that is not a Qrops then it will be an unauthorised payment and the unauthorised payments charges will apply to the transfer.”
Advisers say concerns are focused on Australian, New Zealand and Irish schemes, many of which allow savers to cash in their pensions before 55. About 1,500 schemes, or almost half on the suspended list, were based in Australia.
“As a precaution, we will not transfer to Australian and New Zealand schemes until the new list is published in July,” said LV=, the UK-based pension provider.
It said uncertainty over large tax bills had led to enquiries from people wanting to transfer their pension pots back into the UK.
While HMRC is working through the list to weed out arrangements that do not comply with its new requirement, many UK schemes, including public and private, have frozen all transfers.
“We believe this is the safest option because any transfer to an overseas scheme which turns out not to be a Qrops will result in the transfer being an unauthorised payment, which will then be subject to significant tax charges,” said Royal London, the UK’s largest mutual pension provider.
Advisers believe some expats may have been let down by foreign-based advisers not keeping up with rule changes in the UK. Mr Davies said: “They didn’t realise there is an obligation to keep up to speed with UK rules and their clients are now in a very worrying position.”