Qualifying Recognised Overseas Pension Scheme
QROPS advice for expats
A Qualifying Recognised Overseas Pension Schemes, or QROPS, is an overseas pension scheme that meets specific criteria set by HM Revenue and Customs (HMRC) and is intended to give added freedom to expats still holding pension funds in the UK. Click here to see the list of QROPS approved by HMRC.
To qualify, a QROPS must behave as if it were a UK pension for investors who have been UK residents in the previous five tax years. The QROPS will become subject to UK pension regulations if you return to the UK.
However, for investors who have not been resident in the United Kingdom for at least five tax years, the QROPS is subject to the regulations of the foreign jurisdiction in which it is established. Consequently, you can take income with no limits and there will be no deduction of tax at source (although taxation will apply in accordance with your current country of residence).
A QROPS can receive the transfer of UK Pension Benefits in many privately administered corporate or personal pension schemes, without having an unauthorised payment and scheme sanction charge.
Pension options for expats
When broken down, British expats have the following options when it comes to managing existing UK pension schemes:
Option 1: Leave the UK and retain your workplace or private pension with a UK provider
Option 2: Transfer the UK pension funds into an International SIPP.
Option 3: Transfer the UK pension funds into a QROPS.
There are other choices and variations of course, but typically the options come back to these. QROPS can allow people to take substantial benefits from their pension, including avoiding UK tax by transferring their pension into a QROPS.
To better understand whether a QROPS is right for you, please review its advantages listed below.
Advantages of a QROPS
Overseas transfer charges
On 8th March 2017, the UK government introduced a new overseas transfer charge which could impact many QROPS transfers which were requested on or after 9th March 2017.
Currency Flexibility
QROPS and other overseas pension schemes allow for the payment of pensions in currencies other than Sterling, providing a valuable safeguard for expats.
Tax benefits
Income from UK pension arrangements is subject to income tax. It is collected as a withholding tax at 20%, and this tax is applied to everyone in receipt of UK pension income whether or not they live in the UK and with no exemption for foreign nationals.
No maximum Lifetime Allowance
Any growth in value of the QROPS above the value of the UK Lifetime Allowance (₤1.073m 2020/2021), paid as a pension, will escape the 25% Lifetime Allowance excess tax charge. This charge would otherwise apply to any pension paid from a UK registered pension scheme to persons who are UK resident or non-resident for less than five years when the value of the pension exceeds the Lifetime Allowance.
Inheritance and estate planning
Because a QROPS is not subject to UK jurisdiction or tax regulations, transferring your funds to a QROPS will protect you from UK Inheritance Tax, although your beneficiaries may be subject to local Inheritance Tax regulations.
Overseas pension schemes will typically make sure that residual pension funds pass to the intended beneficiaries much easier and quicker than would be the case in the UK.
It is easier to deal with the question of what happens to a QROPS in the event of expat “deaths.
The nature of the scheme means that the pension fund is outside the pensioner’s property in order to pay UK Inheritance Tax (IHT), so if the beneficiaries of unused funds are not tax resident in the UK, they are permitted to keep the money. IHT rules can of course apply in the country where they are tax resident.
Tax and Investing Flexibility
As an expat you can move your pension funds into a QROPS ‘in specie’, which means you can use the same funds, but under the QROPS umbrella for tax shelter. Conversely, you could invest in almost whatever mutual funds, shares, ETFs, gold funds, silver funds or bond funds that you choose
Protecting your investments
Depending on the jurisdiction chosen for the Overseas Pension Scheme, there is the possibility for greater protection against creditors and other claimants than is usually available.
Accessing your funds
With a QROPS, you can access your pension at 55 and also get an increased lump sum of 30% instead of the 25% if you have lived abroad for five years.
A QROPS can also give you a higher retirement income than in the UK if you wish.
A QROPS also enables you to get all your pensions transferred to the same place, where you can access them online whenever you want, giving you greater visibility.
Annuities
QROPS Qualifying Criteria:
Is a QROPS suitable for you?
You may be eligible for a QROPS if you meet the following criteria:
- You have a UK pension (excluding state pensions) of any value.
- You are planning to, or currently, live overseas.
- You are not planning to return to the UK or you will be out of the UK for a minimum of 5 years.
- You have not already bought an annuity.
- The scheme should not be already in drawdown if yours is a final salary scheme.
- Investment allocation.
UK pension funds typically have a bias towards investment in UK assets. QROPS provide the scope for diversifying, as well as the option for more customised investment management.
Need QROPS advice? Let us help you.
If you are thinking about setting up a QROPS, or you already have a QROPS and want to learn about all of your options, we can help you by introducing you to a UK regulated financial adviser. We have a wide network of UK financial advisers who are living and working in Europe, the Middle East, America and Asia, who have been overseeing pension transfers and advice for over 10 years. All the advisers we work with are also fully qualified to provide advice and work only for firms who are authorised and regulated by the Financial Conduct Authority.
The financial adviser will be able to answer any queries and provide unbiased guidance which will help you with the following: