QROPS Pension Transfers for Expats
Qualifying Recognised Overseas Pension Schemes are HMRC recognised pensions able to receive UK pension assets. QROPS are a compelling option for expats no longer contributing to UK pensions and looking for more flexibility (remember that expats with a QROPS but without five complete tax years overseas, and returning British expats assume tax status of UK resident with a UK registered scheme).
Also crucial to consider is that changes introduced by the Chancellor of the Exchequer for pensions transferred after March 9th 2017, could incur an overseas transfer charge of 25% under certain criteria, more can be found below.
QROPS - Why Use One?
The differences between QROPS and international SIPPs have gradually reduced, but as the difference in costs is significant a review of your circumstances and why you want to transfer is vital. Our guide below covers the main considerations of pension transfers, to be used in conjunction with advice specific to your requirements.
Taxation - The Lifetime Allowance (LTA)
The LTA is the maximum you can accumulate in your pensions before additional tax is payable. If your combined schemes exceed £1,073,100 (2022-2025), the LTA charge is as follows:
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55% if the excess is taken as a lump sum
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25% if the excess is taken as income (annuity or drawdown) in addition to your marginal tax rate.
On transfer to a QROPS, your schemes are tested against the LTA and any subsequent growth avoids additional tax, so your investment can grow indefinitely without heavy penalties.
Income Tax on QROPS
QROPS limit UK income tax if you've lived outside the UK for 5 complete tax years. Tax may still be payable in your country of residence and/or where QROPS is registered. Always consider the potential tax obligations where you're most likely take your pension and DTA's (double taxation agreements) should be observed.
The most common QROPS destinations are Malta, Gibraltar and the Isle of Man. More on each can be found on the QROPS jurisdictions page.
Taxation on Death
As non-UK pensions, QROPS offer protection from UK inheritance tax (IHT). A QROPS is no longer part of a member's estate so if beneficiaries aren't UK tax resident, it may be possible to receive funds tax-free. However, inheritance tax rules may apply locally so always seek advice. It's also worth discussing with beneficiaries how they can access funds and what happens to your QROPS on death after 75.
The 25% Overseas Tax Charge
2017 saw the UK Chancellor of the Exchequer introduce a 25% tax on QROPS transfers unless the new scheme and the member are in the same country, within the European Economic Area (Liechtenstein, Norway, Iceland or EEA) or an individual employer's occupational scheme.
Income taken from QROPS transferred on or after April 6th 2017 and within five tax years, are taxed in the UK (if resident in a country not qualifying for exemptions), extending HMRC's reach. The charge is reversible within five years if criteria for a tax-free transfer once again apply, ie. you return to the EEA, Norway, Iceland or Liechtenstein and have a Maltese QROPS).
QROPS Flexibility - Access to Capital
Flexi-access to pension funds is big reason to transfer. Defined benefit pensions usually pay an income from age 60 or 65 which increases with inflation and is capped. Some DB schemes offer a lump sum at retirement which reduces the potential income if taken.
QROPS remove many restrictions, including waiting until 65 to receive income and instead, allowing access at age 55 and a tax-free lump sum of up to 30%. The jurisdiction of your QROPS can affect how you are taxed and remember, taking larger payments after your tax-free lump sum may attract higher tax, so always see local tax advice..
Investment Flexibility
The management of defined benefit schemes requires no input from members, whereas transferring to a QROPS provides more control and involvement in investment decisions. Fund options are vast so advice should be sought to ensure assets are suitable.
With flexibility also come potential pitfalls. Investment guidelines of each trustee vary and many still accept commission-generating funds, so visit our Good To Know page to learn what to look out for.
Most QROPS providers accept the following recognised asset classes;
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Government bonds
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Corporate bonds
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Collective investment funds
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Equities, stocks and shares
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Cash deposits
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Structured products
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Commercial property
Prohibited assets might include;
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Residential property
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Personal loans
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Antiques, art and collectable assets (and moveable) in general
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Unregulated collective investments (find out more on 'UCIS' funds on our Good to Know page)
Selecting Beneficiaries
A wife, husband or qualifying spouse of a deceased defined benefit scheme member is generally entitled to receive 50% (sometimes rising to 66%) of their benefits, which ceases on their own death (unless children under the age of 18 remain, or 21 and in full-time education).
A DB pension transfer helps avoid benefits being lost on the death of a surviving spouse, allowing the nomination of beneficiaries and options over how remaining funds are distributed, which are taxed depending on their tax residency.
The Cost of QROPS
The costs of QROPS can influence your decision being higher than SIPPS. Larger schemes can dilute the higher fees but set-up and ongoing costs can prove to be expensive for smaller schemes. Some providers offer QROPS for smaller values but fund options may be limited.
Trustees charge set-up costs of between £600-£1,250 and then an ongoing annual fee of between £500-£1250. Additional platform and advice fees will also apply, more on which can found on our costs page.