What are QROPS Pensions and How Can They Help a British Expatriate Based Overseas?
A QROPS means a Qualifying Recognised Overseas Pension Scheme, and enables a person to move their UK pension into an overseas pension if they decide to permanently leave the UK. Finance consultants have been very busy since 2006 helping retirees all over the world on how best to move their UK pension into a QROPS pension transfer.
There are many benefits of a QROPS, from reducing your IHT bill, to an increased choice in how you invest your pension assets. However, expert expat financial advice is essential to ensure that your are properly advised.
The laws governing QROPS pension schemes are fairly simple – if you are living abroad, or intend to leave the UK permanently in the near future, you are able to transfer your UK pension into a QROPS scheme, and benefit from a broad variety of factors.
The consequence of transferring your pension into a QROPS are immediate – most retirees will usually benefit from an enhanced value of a tax-free lump sum (if they choose to take advantage of this possibility), and avoid having to buy an annuity, which in itself is a reason to enter into to a QROPS pension, given the awful annuity packages available.
Tax planning is also an important factor. Currently in the UK, IHT is payable at the rate of 35% if a pension holder dies before 75 and has an income drawdown scheme. On the death of his or her spouse after the age of 75, there may be an additional tax charge on the remainder of the pension funds of 82%. A QROPS can help you to avoid all of these taxes.
QROPS Jurisdictions and HMRC Reporting Requirements
Today there are far more products on the market than there were back in the early days of 2006, which has had the effect of increasing competition and reducing costs. The annual running costs and set up fees of the QROPS will vary from jurisdiction to jurisdiction, and from service provider to service provider. The Isle of Man, Hong Kong, Guernsey and New Zealand are all popular jurisdiction for opening QROPS pensions. Factors to be considered are cost, and quality of service, and stable laws, political stability and law taxation.
It must also be borne in mind that if an expat returns to the UK within 5 years of establishing the QROPS, then the fund will be liable to a 55 tax charge by HMRC. Thus one needs to consider carefully if a move abroad will, indeed be permanent. While the QROPS regime appears to be an exciting new opportunity for exporting clients’ pension arrangements overseas to benefit from more attractive tax regulations, there are a number of reasons why this may not be beneficial – extreme care should be taken when approaching these arrangements. More than ever, good independent advice is the key to making the right decision.
