Pressure on government to close overseas pension tax loophole

16 June 2008

The government has been criticised for not closing a loophole that enables affluent pensioners to retire abroad without paying tax on income from their pensions.

Under the Qualifying Recognised Overseas Pensions Scheme (QROPS), which came into force in April 2006, people can move their retirement funds offshore and, after a period of five years, cash the fund while paying less tax on it than they would have done in the UK or no tax at all.

It is estimated that, with increasing numbers of wealthy retirees moving abroad, the scheme will add up to a significant loss of government income over the coming years, perhaps totalling hundreds of millions of pounds.

Now some politicians are calling on the government to close the loophole, given the pressure that most people are under to save enough for their retirements.

Labour MP, Frank Field has said that tax relief on pensions should be at the standard rate only.

The expense involved in moving a pension fund abroad means that only those with large savings can afford to do so.

Several hundreds of transfers have already been okayed by the Treasury, and many more are expected to follow.

The Treasury was reported as saying that the situation would be monitored to make sure there were no abuses of the scheme.

A spokesperson said: “This system enables genuine emigrants to receive pension benefits according to the rules of the country where their pension scheme is established. HMRC monitors these arrangements very closely and will take action against any abuse it finds. QROPS are required to report all payments that are subject to UK tax charges, and HMRC can ultimately remove QROPS status from schemes.”