Understanding QROPs and How They Benefit Expats
A Qualifying Recognised Overseas Pension Scheme (QROPS) is a term used to describe any UK-recognised pension scheme that is based outside of UK jurisdiction, despite the fact that it’s subject to the same standards of a domestic pension. Schemes like this are invaluable for expats living and working outside of the United Kingdom for a number of different reasons.
If you already have a local pension, but are looking to move away from the UK, then it’s important to understand that you can transfer those funds offshore and gain some quite lucrative benefits and tax breaks. There are several fully compliant overseas schemes that are registered with HMRC, and you can legally relocate your pension to them.
QROPS has proved to be very popular. According to latest statistics from HMRC, there have been over 100,000 transfers since it was introduced in 2006.
What Are the Benefits of a QROPS?
There are many benefits of a QROPS, some which will be of more significance than others, simply depending on your own personal circumstances. One benefit is that a QROPS allows you to be able to take control your hard-earned investments, similar to a SIPPS. Additionally, rather than having to maintain several smaller pension accounts at each of the places you’ve lived and worked, you can combine all of them into a single account that’s easier to manage and draw upon, more than likely reducing administrate and management costs.
With a QROPS, you can also exercise greater control over your legacy. As long as you have spent at least the last five years living outside of the UK, you can transfer your fund to a beneficiary in the case of your death without it being subject to any deduction; normally your pension is either halved, or taxed at the beneficiaries marginal income rate (up to 45%). You are also able to add several different beneficiaries to your pension, such as brothers and sisters or children, this is normally not an option in conventional occupational pension schemes. Additionally, you are able to mitigate paying UK income tax on your pension, and in some cases receive all of your pension free of tax – * subject to specific jurisdictional taxation legislation, Knightsbridge place are not tax advisers and recommend tax advice is sought.
How Do I Know If a QROPS Is Right for Me?
Determining whether you would benefit from a QROPS is fairly straightforward. If you have left the UK (or are planning to) without leaving the boundaries of the European Economic Area (EEA), then chances are high that you’ll benefit from such a scheme. In fact, you don’t even have to limit yourself to the EEA, as there are a few external jurisdictions in which setting up a QROPS may be possible.
If you’re not sure if you qualify for a pension scheme like this, all you have to do is contact Knightsbridge Place. One of our financial advisors will listen to your case and with your permission complete a fully comprehensive review on your current pension(s). Once we fully understand your personal circumstances along with all of the benefits your current scheme(s) are offering we can at that point advise you on the best course of action. We will be able to ensure that if a QROPS is right for you, the QROPS scheme you enroll in is the best possible product given your circumstances – and that it’s fully compliant with all prevailing laws and regulations, allowing you to pay the lowest tax legally possible.
We should also note that choosing the best overseas jurisdiction for your QROPS may also require additional consideration. Upon listening to the details of your specific case, we’ll present you with those options that are best-suited to your needs. Contact us now to speak with one of our representatives and to arrange a no-obligation pension review.
Which is the best jurisdiction for QROPS?
The QROPS jurisdiction you choose will vary depending on your individual requirements. We will present you with a suitable option and explain the choice in great detail.
For a pension review with no obligation, or to learn more about QROPS and how it can help you, speak to one of our regulated advisors today.
How Are QROPS Affected by the UK Budget 2017?
On 8 March 2017, the Chancellor of Exchequer, Philip Hammond, delivered the Spring Budget to Parliament. Much of what he had to say came as a shock to the expat community. There were many expected changes that simply did not materialise in this year’s budget. For example, many expected to see new restrictions on pension tax relief or deeper cuts into the annual and lifetime allowance limits on pensions. However, the main changes were to QROPS and they were unexpected to say the least.
“3.46 Qualifying recognised overseas pension schemes (QROPS): introduction of transfer charge – The government will introduce a 25% charge on transfers to QROPS. This charge is targeted at those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction. Exceptions will apply to the charge allowing transfers to be made tax-free where people have a genuine need to transfer their pension, including when the individual and the pension are both located within the European Economic Area. (23)”
As of 9th March 2017, the above changes are in full effect. If you have any further questions about any bearing this may have on your existing QROPS, please don’t hesitate to contact us.
How Will These Changes Affect the Primary QROPS Jurisdictions?
There are three primary jurisdictions where qualifying recognised overseas pension schemes flourish. In the space below, we’ll explain how QROPS in each of those jurisdictions are expected to fare:
So long as the person in question is a resident of an EEA country, then transfers into a Gibraltar QROPS will not result in any additional fines. However, individuals residing outside the EEA and hoping to transfer into a Gibraltar QROPS will attract a 25% charge.
Isle of Man
The same regulations also apply to the Isle of Man. If a person resides outside of the EEA and wishes to transfer into an Isle of Man QROPS, their transfer will be subject to the 25% fee. Those residing inside the EEA do not need to worry about this.
As with the previous two cases, transfers into Malta QROPS will only attract the 25% transfer fee if the person making the transfer resides outside of the EEA. Those living and working within Europe are free to transfer their pension fund to a Malta QROPS.
There are a few other important points to keep in mind regarding this transfer fee. To begin with – and as previously touched on – persons who qualify for a tax-free transfer to a QROPS account (due to meeting the aforementioned criteria) will have to be mindful of their future circumstances over the next five years. This means, for example, that moving to a country outside of the EEA during that five-year period could result in backdated tax.
However, this also works in the opposite direction. If a tax was initially levied on a person who lived outside of the EEA at the time of the transfer, and they ultimately move within the EEA within five years and bring their pension scheme with them, they may be able to reclaim the 25% tax.
If you have a UK pension fund, whether it be a private pension or a final salary pension with a company, there may be advantages to moving your pension to a QROPS. After speaking to an advisor at Knightsbridge Place, you will be crystal clear on what options are available, and the advantages and disadvantages of moving your pension.