UK Pension Changes – What’s Certain and What’s Still to Be Resolved
The UK government has set out significant pension tax changes that could impact individuals with Guernsey-based pension schemes.
This is particularly relevant for those with Retirement Annuity Trust Schemes (RATS), Qualifying Non-UK Pension Schemes (QNUPS), or Qualifying Recognised Overseas Pension Schemes (QROPS). While some measures have already taken effect, others remain under consultation, leaving uncertainty for those with UK pension ties.
What we know
The Overseas Transfer Charge (OTC) changes took effect from 30 October 2024
Previously, UK pension transfers to a QROPS established in a country in the European Economic Area (EEA) or Gibraltar were exempt from the 25% OTC if the individual was a resident in the UK or the EEA. As of 30 October 2024, this exemption no longer applies. However, Guernsey-based QROPS remain unaffected as long as the member is a Guernsey resident at the time of transfer. Accordingly a RATS approved as a QROPS can continue to be established for Guernsey residents wanting to transfer and consolidate their UK pensions.
New rules for overseas pension schemes from 6 April 2025
From April 2025, any Recognised Overseas Pension Schemes established in the EEA will face stricter conditions, aligning them with schemes in the rest of the world. Going forward, these schemes must be regulated by the regulator of pension schemes in that country, and be based in a country that has a double tax agreement with the UK. Guernsey already meets these criteria, so no immediate impact is expected for Guernsey-based ROPS.
What’s still to be resolved
UK Inheritance Tax (IHT) rules for pensions are still under consultation
Currently, unused UK pension funds in non-UK schemes such as QROPS and QNUPS are exempt from UK IHT on death. However, proposals suggest that from April 2027, most unused pension funds could be included in an individual’s estate for IHT purposes. The proposals should only apply to a pension scheme member who is UK resident. If this goes ahead, pension administrators would need to report and pay IHT to HMRC, potentially impacting Guernsey-based schemes with UK resident members.
A shift from domicile to residency for IHT liability
From 6 April 2025 the UK has now moved away from a domicile-based taxation of IHT to a system based on UK residency. Anyone who has been a UK resident for 10 of the last 20 years (known as a Long-Term Resident or LTR) will remain liable for UK IHT on their worldwide assets for a “tail” period of up to 10 years after leaving the UK. This could mean Guernsey residents with past UK ties could have an exposure to UK IHT, even years after leaving the UK.
What should you do next?
Given the uncertainty, it’s important to stay informed and seek expert guidance. Orbitus is closely monitoring these changes and working with clients and tax advisors to assess potential risks and opportunities. Whether you’re planning a pension transfer, considering your UK IHT exposure, or just want clarity on your options, we’re here to help.
If you’d like to understand how these developments could affect your situation, get in touch with our team today.