Just 30 of the 4,700 qualifying recognised overseas pension scheme (Qrops) transfers carried out during 2017/18 had to pay the 25% charge introduced by the UK Government in March 2017.
A freedom of information request by Canada Life uncovered that HMRC only raised £1.4m ($1.8m, €1.6m), a significant shortfall from the £65m expected by the Exchequer.
Budget shock
The 25% charge came as a massive shock to industry when it was announced by chancellor Philip Hammond during the March 2017 Budget.
It applies to any pension transfers outside of the EEA or to jurisdictions where the individual did not relocate and live for at least five years.
It was intended to discourage transfers from UK schemes where a person is looking to reduce their tax liability by moving their pension to a new jurisdiction.
The result has been a huge shift away from Qrops, as evidenced from the latest HMRC figures released in July.
At its peak, Qrops transfers hit 20,100 during 2014/15, with £1.76bn in pension money moved out of the UK.
During the 2017/18 tax year, however, the number of transfers was down by more than half to 4,700, from 9,700 the previous year.
As a result, year-on-year, the value transferred dropped to £740m from £1.22bn.
Second thoughts
Andrew Tully, pensions technical director at Canada Life, commented: “Going by the low number of transfers where a charge has been applied, it would appear many people have had second thoughts about moving their pension overseas.
“The pension freedoms may also have had an impact on the general decline in the number of transfers to Qrops as there is much greater flexibility in how people can access their benefits in the UK.
“Although the number of transfers attracting a charge is very small, and the resulting tax raised very low compared to the Government’s own assumptions, HM Treasury will be pleased another tax loophole has effectively been closed and further tax leakage prevented,” Tully said.
