“Occupational QROPS” are being marketed as a clever way to sidestep the OTC – and we believe this advice could put clients at serious risk.
The Overseas Transfer Charge (OTC) applies to most transfers of a UK pension into an offshore QROPS (Qualifying Recognised Overseas Pension Scheme). Unless the pension holder is resident in the same country as the QROPS, HMRC imposes a 25% tax charge on the full transfer value – a significant penalty.
One of the exceptions is where a UK pension is transferred into a genuine occupational pension scheme (IORP) with a sponsoring employer. Recently, however, we’ve seen these so-called “Occupational QROPS” being marketed as a clever way to sidestep the OTC – and we believe this advice could put clients at serious risk.
How the Marketing Works
On the surface, the idea looks straightforward:
- The client sets up a new limited company (often offshore).
- The company becomes the “sponsoring employer” of a Malta IORP.
- The client then “employs” themselves, makes a token contribution (sometimes as little as €500), and transfers their UK pension into the scheme.
- Because it’s an occupational arrangement, the promoters claim the 25% OTC does not apply.
What’s Wrong With This?
In our opinion, this arrangement is deeply flawed:
- Occupational link must be real
An IORP is designed for employees of a real business or association. A shell company set up purely to qualify for IORP membership has no genuine economic activity.
- Regulator concerns
The Malta Financial Services Authority (MFSA) expects sponsoring employers to be bona fide businesses with substance, staff, and ongoing operations. A “fake” consultancy with a single director-employee is unlikely to meet this test.
- HMRC perspective
HMRC is very clear that overseas pension transfers must have a genuine employment link. If the link is artificial, HMRC can:- Reapply the 25% OTC to the full transfer amount.
- Treat the arrangement as tax avoidance, potentially adding penalties.
- In extreme cases, question whether the IORP itself qualifies as a QROPS. This could trigger unauthorised payment charges of up to 55%.
The Bottom Line
If you are being advised to move your UK pension into a Malta IORP through a shell company, proceed with extreme caution. These structures may look like a loophole, but both HMRC and the MFSA are highly likely to view them as artificial and non-compliant.
Our advice:
- Only consider an occupational IORP if there is a genuine employment relationship with a real, operating business.
- Always obtain independent tax advice before transferring pensions offshore.
- If an adviser insists that the scheme is watertight, ask them to provide a written indemnity against any future HMRC tax charges. If they won’t, that should tell you everything you need to know.
Final thoughts
The promise of avoiding a 25% tax charge may sound appealing, but if the foundation is artificial, the risks far outweigh the benefits. Don’t gamble your retirement on aggressive schemes that HMRC could dismantle tomorrow.
