The transfer to a QROPS is considered a benefit crystallisation event for Lifetime Allowance purposes; taking benefits relating to the transferred amount from a QROPS is not.
If the transfer exceeds the member’s lifetime allowance then a 25% tax charge will apply on the excess.
For example, David has a current UK pension value of £1.4 million. David is not expecting to crystallise pension fund benefits soon, and worries investment growth may exceed increases in the Lifetime Allowance, which are currently unknown beyond 2010/11.
He cannot protect his existing pension fund due to significant employer contributions to his UK pension scheme since A-Day. If he transfers his UK pension fund to a QROPS there will be no tax charge on transfer, as the fund is less than the current Lifetime Allowance. In addition, no UK tax will be due on the fund when David retires to Cyprus some years later, even if it exceeds the UK Lifetime Allowance.
However, if David leaves his pension scheme in the UK and retires to Cyprus at the point that the benefits become payable, it would be considered a benefit crystallisation event. Should the fund exceed the then Lifetime Allowance, a tax charge on the excess above the lifetime limit will occur.
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