Qualifying Recognised Overseas Pension Scheme
QROPS stands for 'qualifying recognised overseas pension scheme'. Simply put, it is a pension overseas that HMRC is happy to allow your UK pension to be transferred into.
If you are thinking of moving abroad, or you already live overseas, a QROPS may be useful for you. If you retire in that country, having your pension in a QROPS would mean you could possibly receive your income in the local currency rather than sterling, avoiding foreign exchange fluctuations. Having a local pension scheme can also make it easier to stay on the right side of any tax and regulation changes in the country you reside. Before making a decision, it is important to take financial advice, as you may be giving up valuable guarantees and benefits on your old scheme.
Beware of 25% transfer tax
Since March 2017 transfers to QROPS can come with a 25% tax charge, but most people can avoid it. No charge applies if you are resident in the country where the QROPS receiving your transfer is based, or you reside in a European Economic Area (EEA) country and the QROPS you are transferring to is based in another EEA country.
Likewise, there's no charge if you work abroad and are transferring your UK retirement pot to a workplace pension run by your employer.
But get your paperwork in order; if your UK pension does not receive the correct information, it will charge you the 25% tax for the transfer and you'll need to apply for a refund at a later date. Also bear in mind if your circumstances change within 5 years, for example, you move to another country, you may then have to pay the 25% tax charge.
Separately, note that if you are under 75 and transfer into a QROPS, the value of your pot will be tested against the UK lifetime pension allowance, currently £1.05m. If you breach that limit, you'll have to pay a 25% tax charge on the excess. In the UK, If the value of all of your pension benefits, across all schemes, exceeds the lifetime allowance, any excess attracts a tax charge of 25% if it is withdrawn as an income (for instance from an annuity or a drawdown arrangement) or 55% if it is withdrawn as a cash lump sum.
Stick to recognised QROPS
It is extremely important you only transfer to a QROPS recognised by HMRC. There is a list here .
Transferring your UK pension to an overseas scheme, not on that list will cost you a 55% unauthorised tax charge, or more. On top of that, the scheme could be badly run or even a scam, and you could lose everything with no recourse to compensation.
Moving to a QROPS still means abiding by some UK rules, the most important one being you can't access your pension before age 55 (if you do you face a 55% tax charge). Other UK tax rules can apply for 5 years after you have transferred.
If you moved into a QROPS before 6th April 2017 you have to reside outside the UK for 5 consecutive tax years before you can draw on your pension. This has been upped to 10 years for those transferring after that date. Before you transfer, find out what tax you will pay on the pension income, as this will vary.
Finally, you don't have to have a QROPS if you are retiring abroad, but if you do choose one, be clear about any charges you have to pay for transferring, and what the costs are of the new scheme.
expatwealthatwork have HMRC recognised overseas pension schemes and can do all the hard work for you. If you would like more information about a QROPS or an International SIPP, please contact us and we'll get in touch soon. Don't wait until it is too late, contact us now and enjoy the many benefits that a Qualifying Recognised Overseas Pension Scheme can offer you.
Transferring your UK pensions to QROPS
A UK pension may be transferred into QROPS either before the owner starts to take the benefits or after they have come into payment. Transfers can take up to 2-3 months but sometimes quicker.
Anyone falling into the QROPS pension categories needs to seek out independent and professional advice from us. We provide our clients with a high level of service and confidentiality. We can save you money and conduct your business at minimal cost to yourself, if you are prepared to sign a relevance of letter of Authority so we can act upon your behalf.
Why would someone transfer a UK pension to a QROPS?
- No need to EVER purchase an annuity or pay UK tax charge upon death
- Leave ALL unused pension funds to your beneficiaries free of tax at source
- Much greater investment freedom
- Tax free lump sum of up to 30%
- Onshore / offshore highest fixed deposit rates, total diversification
- Take an income from your pension with zero tax
- Take income and benefits in the currency of choice
- Protection against possible creditors
Estate and succession planning
Any funds left in a pension (QROPS) Qualifying Recognised Overseas Pension Scheme on the death of the investor can be passed on tax-free to their spouse, children or grandchildren of the estate, providing they live outside the UK.
After 5 + years of being non-UK tax residence, funds in a QROPS are generally outside of the reach of United kingdom's HMRC inheritance tax, but the country where the investor is resident at death may exact some form of tax.
The QROPS investor has no obligation to draw any payments from QROPS immediately, so they can leave the pension fund intact to pass to family or loved ones. However, generally at age 71 or 74 they must start taking some benefits.
Pension rights that are transferred to an overseas pension are also taken outside the UK inheritance tax net, which can result in a significant succession planning benefit. There is NO income tax charge imposed on the payment of a lump sum to the member's dependants on the member's death providing they are not UK resident. Therefore the QROPS is likely to provide a larger fund to pass on to their beneficiaries
Overseas pension schemes will usually ensure that residual pension funds pass to the intended beneficiaries much easier and quicker than would be the case in the UK.