The rules concerning the UK are constantly changed by the Her Majesty’s Revenue and Customs (HMRC). That’s why it is quite important that pension holders in the Qualifying Recognized Overseas Pension Scheme (QROPS) and Self-Invested Personal Pension (SIPP) familiarise themselves with the rules and regulations of the pension schemes. More importantly, you should properly familiarise yourself regarding the transfer of funds, withdrawals, tax rules, and rules in death situations regarding these two pension types. This way, you can ensure proper management of funds or its transfer to your family of the beneficiary.
The following are consequential to pensioners:
Rules on Beneficiaries
The beneficiaries of a QROPS scheme, must be non-residents of the United Kingdom or this would attract a higher tax rate from the United Kingdom. Also, in the case of death of the retiree, the beneficiary must possess proof of five years of residence in another country besides the UK to receive the funds without the inclusion of the normal UK taxes. If the years of residence in another country are not up to five years, the funds can be left in the pension account and can be withdrawn after the completion of the five years.
Rules on Death Tax
The death of the pension holder under or above 75 years of age attracts no death tax in a SIPP scheme in the United Kingdom. However, the residing country of the beneficiary may collect taxes. In the QROPS, the rules vary from country to country, but there is no death tax included in case of the death of the account holder.
Without the UK Tax for people 75 and under, beneficiaries and account holders have 100% access to their UK pensions. Although, QROPS offer specific circumstances for this possibility.
Rules on Access to Pension Fund
100% access is granted to the pension account holders from the age of 55 and above. People in this age range can enjoy flexible use of their money. The taxes on this income are based on the individual’s country of residence.
Rules on Tax
Only 25% of the funds generated will be tax-free when moving up to 100% of the pension fund in large funds. The remaining 75% will be charged by the resident’s country.
Income taxes are usually deducted if more than a quarter of the money is deducted once the individual reaches the age of 55.
Income tax efficiency is based on the type of dual taxation agreement (DTA) of the individual’s resident country on retirement.
There are no provisions for tax relief for UK non-taxpayers in SIPP.
Rules on Pension Transfers
Pension transfers in any scheme must be signed off by an adviser currently under regulation of the UK Financial Conduct Activity regulation and a qualified G60/AF3 individual.
Rules on Investment Choices
QROPS has similar investment choices to a SIPP but typically less regulation. One can either carry out these investments in large or small sums but consistent amounts during the time of investment.
There are no provisions for tax relief for UK non-taxpayers in SIPP.
Conclusion
Like every other pension scheme, the SIPP and the QROPS schemes have laid out rules guiding their general operations. While there are obstacles relating to the country of residence of the pension holder, other factors such as tax payment, pension transfer rules, and death affect the outcome of these schemes.