Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss clauses 33 and 34 stand part.

These clauses make changes to pension schemes established in, or administered by, persons resident in European economic area states and bring them in line the rest of the world.

Currently, individuals can transfer some or all of their UK pension savings to an overseas pension scheme, provided it is a qualifying recognised overseas pension scheme. Certain transfers to such schemes are subject to the overseas transfer charge, which is a 25% tax charge on the value of the transfer. However, provided they do not exceed the overseas transfer allowance, UK or EEA residents are excluded from this charge for transfers to qualifying overseas pension schemes in the EEA and Gibraltar. That exclusion was introduced to comply with EU fundamental freedoms that were in place at the time. As a result, some pension scheme members can benefit from double tax-free allowances by taking tax-free entitlements from both their UK scheme and their qualifying overseas pension schemes.

The changes made by clause 32 remove that exclusion from the overseas transfer charge for transfers from 30 October 2024. As a result, transfers will be subject to the overseas transfer charge unless another exclusion applies—for example, if the transfer is to a scheme established in a country where the member is a resident. That will reduce the number of tax-free transfers made and help to keep up to £1 billion of pension savings in the UK over the next five years.

Clause 33 concerns the requirements for schemes to be considered as overseas pension schemes and recognised overseas pension schemes. When the UK was a member of the EU, the requirements for schemes based in the EEA were different from those for schemes based in the rest of the world.

The changes made by clause 33 mean that a non-occupational pension scheme established in the EEA must be regulated by a pension schemes regulator in that country—provided there is such a regulator—to be considered an overseas pension scheme. If there is no such regulator, the scheme provider must be regulated for the establishment and provision of the scheme.

Furthermore, to be considered a recognised overseas pension scheme, a scheme based in the EEA must be established in a country with which the UK has either a double tax agreement that allows for exchange of information or a tax information exchange agreement.

The changes will take effect from 6 April 2025. They will align the requirements for schemes in the EEA with those for the rest of the world, and bring the requirements for non-occupational schemes in line with those for occupational ones.

Clause 34 concerns the requirements on administrators of UK registered pension schemes. Under the existing rules for such schemes, the scheme administrator can be a resident in the EEA, which can make enforcement of tax debts from the scheme difficult and costly for HMRC. The changes made by clause 34 would mean that, from 6 April 2026, all scheme administrators of UK registered pension schemes will need to be UK residents. That requirement will support HMRC’s enforcement activities, as there will be a UK resident for it to engage with.

In conclusion, the changes made by these clauses will bring the tax treatment of transfers to EEA and Gibraltar pension schemes, the conditions that EEA overseas schemes need to meet, and the requirements for EEA administrators of UK schemes in line with the rest of the world. I commend the clauses to the Committee.

As we have heard from the Minister, clause 32 reduces tax-free transfers from UK tax-relieved pensions by removing the exclusion from the overseas tax charge. The Government have also announced linked tax maintenance measures in the other clauses. Clause 33 makes changes to the conditions for overseas pension schemes and recognised overseas pension schemes established in the EEA, so that from 6 April this year, they must meet the same conditions as schemes established in the rest of the world.

Clause 34 makes changes to the requirements for pension scheme administrators for registered pension schemes so that they must be UK resident. The OTC was introduced in 2017 to prevent individuals reducing the UK tax due on their pensions by transferring them overseas, particularly to low-tax income jurisdictions, while still benefiting from UK pension tax relief. The 25% charge applies on transfers overseas, unless there is an exclusion from that charge at the point of transfer.

At the Budget in the autumn, the Government announced that they would remove the exclusion from OTC of transfers to qualified pension schemes established in the EEA and Gibraltar where the member is resident in the UK or an EEA state. Aligning the treatment to transfer made with those to the rest of the world will deal with the risk of a double tax-free benefit. The tax information and impact note states:

“Aligning the treatment of transfers to QROPS established in the EEA and Gibraltar with that of transfers to QROPS established in the rest of the world... reduces the risk of around £1 billion of UK tax-relieved pension savings being transferred overseas across the scorecard.”

Could the Minister confirm how many individuals use the current exclusion and at what cost? It would also be useful to know how much has been raised by the OTC since it was introduced in 2017.

Clause 32 brings to an end the exclusion that can currently be used to transfer to schemes in the EEA. According to the Society of Pension Professionals, in doing so, individuals can benefit from a double tax-free allowance of more than £2 million. The tax note acknowledges:

“There will be operational impacts on HMRC caused by removal of the exclusion… HMRC will need to make some changes to forms, guidance and processes to support this.”

Would the Minister provide an update on how far HMRC has got in preparing for those updates and changes?

As the Minister said, clause 34 provides that the scheme administrator must be resident in the UK. That means that, ahead of 6 April 2026, schemes will need to check whether their current scheme administrator will remain valid from this date. Again, the tax information and impact note confirms:

“Changing the rules on who can be a scheme administrator for a registered pension scheme, could mean that some individuals might not be able to pay further funds into a scheme if the pension scheme does not appoint a UK resident pension scheme administrator and is deregistered.”

How many individuals does the Minister estimate this will impact, and what guidance will HMRC provide to prevent individuals from falling foul of the rule change? Again, the Society of Pension Professionals has pointed out that it would be useful if the memorandum indicated how this could impact on schemes where all of its trustees act as the scheme administrator but some are EEA based and some are UK resident. I would be grateful if the Minister could provide some clarity on that point. As I have set out, we support this change, and I look forward to the Minister’s response to the technical questions I have raised.

I thank the shadow Minister for his questions. I hope to answer all of them and, if I do not, I promise to write to him with clarification. He asked some questions about the number of individuals. I can tell him that in 2023-24, there were 7,100 transfers to qualifying recognised overseas pension schemes, and the value of those transfers was £1.14 billion. There is an increasing risk that these transfers were being made tax free and that some of these individuals would have been benefiting from the double tax-free allowances. I note the hon. Gentleman’s support for eliminating the risk of that and not allowing people to benefit from double tax-free allowances, which is obviously the main intention of these clauses. He asked about HMRC being prepared and the operational challenges that it might face as a result of the changes. Treasury Ministers and officials work very closely with HMRC—we are in the same building—and these changes have been drafted and consulted on with HMRC, so I suspect that I can reassure him that everything is in order.

The hon. Gentleman asked whether individuals will still be able to pay funds into a registered pension scheme if they do not appoint a UK-resident scheme administrator. Some individuals might not be able to get tax relief on further funds paid into pension scheme if the scheme does not appoint a UK-resident pension scheme administrator and if the scheme is subsequently deregistered. However, we do not expect many schemes to be affected by this issue, because the process for changing scheme administrators is established and, as the hon. Gentleman will have seen in clause 34, we are providing a longer lead-in time—until early April 2026—for the establishment of the UK administrators.

I may not have answered all the shadow Minister’s questions, but I promise that I will write to provide clarification on any that I have missed.

Question put and agreed to.

Clause 32 accordingly ordered to stand part of the Bill.

Clauses 33 and 34 ordered to stand part of the Bill.