11 AUG 2026

Technical Newsletter - August 2026

Issue 13 - August 2026

 

Welcome to Issue 12 of our newsletter.

 

LTA abolition changes - final details (hopefully)!

The summer is usually a quiet season for pensions, but towards the end of June, the Government quietly published Statutory Instrument (SI) 2026 No.698. This is making what are believed to be the final changes tidying up the lifetime allowance abolition legislation, which had been published quite quickly in 2024 and left one or two unintended consequences.

Statutory Instrument No.698 will be of particular interest to our internationally based readers, because it deals with a loophole that had been exposed in the UK press a couple of years ago, involving QROPS schemes. Namely that it was possible for an individual to take a pension commencement lump sum (PCLS) from a QROPS and then transfer that scheme to a UK pension and take a further PCLS from any uncrystallised funds, potentially providing for a total PCLS of up to £536,550 (twice the Lump Sum Allowance).

The Statutory Instrument amends the Income Tax, Earnings and Pensions Act (ITEPA) 2003, which is the primary piece of legislation governing the non-taxable lump sum allowances, inserting paragraphs that now direct providers to deduct from the starting Lump Sum and Death Benefit Allowance (LSDBA) and Lump Sum Allowance (LSA), any PCLS payments or Uncrystallised Funds Pension Lump Sum (UFPLS) payments paid from non-UK Pension Schemes. 

Advisers therefore need to be aware of this change when assisting clients who are seeking to move a QROPS back to the UK, where that QROPS has crystallised and a non-taxable lump sum has been paid, because their UK PCLS and UFPLS entitlement will be less than they might be expecting.

A further tweak in the same SI affects the Overseas Transfer Charge (OTC) calculation. Simply when adding back in any Drawdown crystallisation (BCE1), the calculation now requires you to establish what percentage of the LTA the BCE1 represented and then add back in the resulting amount.

 

Technical Review

Overseas pension transfer to SIPP and SIPP transfer to overseas pension: how the Finance Act 2004 deals with each scenario.

Here at IFGL Pensions we are frequently involved with transfer requests from members transferring away to an overseas pension scheme, but equally we receive a number of transfer payments involving members moving overseas pension schemes to the UK. The latter category has certainly increased in number since legislation passed in recent years reduced the attractiveness of QROPS schemes compared to UK SIPPs.

These transfers need some care to ensure that they do not attract any unwelcome HMRC tax charges. The main one we are seeking to avoid is a 40 or 55% unauthorised payment charge. Legislation governing pension transfers is covered by the Finance Act 2004 and misunderstandings can arise over when and when not a transfer is appropriate.

For transfers away from the UK, the Pension Act 2004 is fairly concise, Section 169 deals with “Recognised transfers”. Only “Recognised transfers” are considered by HMRC to be legitimate from a UK legislative perspective and any other type of pension transfer will result in an unauthorised payment tax charge.

 

 

What is a recognised transfer then?

S169 confirms that: 

“A recognised transfer is a transfer of sums or assets held for the purposes of, or representing accrued rights under:

(a) a registered pension scheme, or
(b) a qualifying recognised overseas pension scheme.”

However, whilst category (b) is fairly clear, e.g. a QROPS, what is category (a)?

Here we must move to a different section of the Finance Act, namely Chapter 2 and Section 153. This explains that an application is made to the Inland Revenue (HMRC) for a pension scheme to be registered. Only UK schemes are registered with HMRC, so this refers to UK personal and occupational pension schemes only.

Putting the two parts together then, we can see that any transfer to a scheme that is not a QROPS or one which is a registered pension scheme with HMRC, is not a recognised transfer and will incur what are termed “member payment charges”, in other words, an unauthorised payment charge.

This is why we must check carefully that any overseas scheme we are asked to transfer one of our members' pensions to is on the GOV.UK recognised overseas pension list.

 

Incoming transfers to UK schemes

Moving now to the area of incoming transfers to UK schemes. Observant readers of Section 169 Finance Act 2004 will have noticed that the rules contained therein only deal with the scenario of a transfer from a registered pension scheme. In other words, transfers to registered pension schemes are not bound by the rules contained in S169 and unauthorised payment charges do not apply if a UK scheme receives a transfer from a scheme which is neither a registered pension (UK scheme) or a QROPS.

The HMRC Pension Tax Manual actually confirms this to be so, in section PTM100010 where it confirms simply that:

A registered pension scheme may accept a transfer from any type of pension scheme, that is:

• another registered pension scheme
• a UK pension scheme that is not registered
• a qualifying recognised overseas pension scheme, or
• any other type of non-UK pension scheme

Clearly advisers need to ensure that any pension transfer involving benefits moving to a UK scheme is the right answer for their client, but it is comforting to know that from a UK pension tax perspective, provided the scheme being moved into the UK is a recognisable pension (in line with Section 150 of Finance Act 2004), no unauthorised payment charges should apply. Something like a US IRS scheme then, which HMRC does not recognise as a pension, cannot be transferred to a UK pension. Most delisted or current QROPS pensions, however, IFGL Pensions can accept!

 

Inheritance tax update

Finally this month another Statutory Instrument (No.818) was made on 13 July, confirming the amendments being made to pension regulations from April 2027, bringing pension schemes within scope of Inheritance Tax (IHT) for the first time. This is an indicator that there are to be no u-turns from Government on this controversial change to pension legislation.

As we are however only a few weeks into the new premiership of Andy Burnham and are currently unsure what changes he might bring to Government policy, we will hold off providing further detail on this piece of legislation until a future issue.

 

This month’s issue has been quite “tech heavy”, a technical newsletter doing what it says on the tin, in effect. We hope that advisers who have been grappling with some of the more complicated cross-border pension transfers will find it interesting and useful, however.

In closing, just a reminder that for any technical questions involving anything pension related, you can obtain support and assistance by sending an email to technical@ifglpensions.com.

 

IMPORTANT NOTE Please note that any information provided is not financial advice. IFGL Pensions is not authorised to provide financial advice, or taxation advice. This information is based on our understanding of current regulations and requirements.