QROPS and QNUPS
- QROPS - qualifying recognised overseas pension schemes
- Who is best suited for a QROPS?
- Considerations following the 2017 Spring Budget
- Reporting considerations
- Income
- Funding restrictions
- Age limit
- Double taxation agreement considerations
- Overseas Transfer Charge
- Inheritance tax and death considerations
- QNUPS - Qualifying Non-UK Pension Scheme
- Residency considerations
- Reporting consideration
- Income
- Funding restrictions
- Age limit
- Inheritance tax and death considerations
- Transferring a defined contribution pension abroad
- Transferring a defined benefit pension abroad
- Overseas transfers of pensions
QROPS - qualifying recognised overseas pension schemes
A QROPS is an overseas pension scheme which has agreed to HMRC (Her Majesty’s Revenue and Customs) to provide information about member payments along with other details therefore enabling them to accept transfers from UK registered pension schemes.
Click here to view a list of registered overseas QROPS pensions.
Who is best suited for a QROPS?
- UK nationals, with pension rights in the UK, who plan to retire permanently outside the UK.
- Overseas nationals, who have accumulated pension savings while working in the UK, and who now live outside the UK or plan to move.
Transferring to a QROPS is a choice. If you don’t decide to opt for a QROPS, the pension pot will be retained by your workplace or private pension with a UK provider.
Considerations following the 2017 Spring Budget
Pension transfers made to a QROPS, effective March 2017, will incur a 25% tax charge, as announced in the Spring 2017 Budget. The exception to this rule is if both the individual and the pension scheme to which the transfer is done, are both in the EEA (European Economic Area).
Reporting considerations
From the time of transfer out of the UK registered pension scheme, all payments are reportable for a period of 10 years, the responsibility which lies with the QROPS trustees. This is something they undertook to do when they registered themselves as a QROPS with HMRC.
Income and tax benefits
- Income from UK pensions is subject to income tax. With QROPS, your taxation will depend on the laws applicable to the jurisdiction where you are assessed for tax.
- Growth in value above £1.0731 million, the 2020 threshold for Lifetime Allowance, will not incur the 25% Lifetime Allowance excess tax.
- QROPS funds, like UK pension funds, are normally exempt from UK inheritance tax. But the country where the investor is resident at death may impose some form of inheritance or death tax. Additionally, if your beneficiaries are UK residents, they may have inheritance tax liability depending on laws in force at the time.
Funding restrictions
QROPS cater to transfers from UK pension schemes. Typically, assets will have to be liquidated before they can be transferred to a QROPS.
Age limit
You will be able to access your pension from the age of 55. The maximum age at which you can start taking benefits under the scheme is normally 75.
Double taxation agreement considerations
The jurisdiction chosen for the QROPS should have a suitable double taxation agreement (DTA) with the QROPS member’s chosen country of residence in retirement – or satisfy other specific conditions.
Overseas Transfer Charge
Tax charges can arise on a transfer to a QROPS, but not if you are a resident (and remain a resident for five UK tax years) in the same jurisdiction as the QROPS – treating the whole of the EU as one single jurisdiction for this purpose.
Inheritance tax and death considerations
QROPS funds, like UK pension funds, are normally exempt from UK inheritance tax. But, the country where the investor is resident at death may impose some form of inheritance or death tax.
QNUPS - Qualifying Non-UK Pension Scheme
A QNUPS is a regulated pension scheme that allows investment of wealth overseas, allowing it to have certain tax benefits.
Transfers from UK registered pension schemes to QNUPS are, however, not permitted.
Who is best suited for a QNUPS?
- If you have begun to feel the need for a global pension scheme, as opposed to one based in the UK, or if you are in an income bracket where you are already fully utilising your income tax relievable pension contribution, QNUPS would be the right choice for you. In that sense, it would also serve as a legitimate tax management tool.
Residency and tax considerations
There are no restrictions on residence; you can live where you want and have a QNUPS. The tax treatment of the scheme and income from it, however, will be based on the jurisdiction where the scheme is established and the jurisdiction where you are assessed for taxes.
If you live in the UK when you start drawing income from the scheme, the income will be subject to taxes as per UK regulations.
Reporting consideration
As it can be anywhere, and not restricted to countries with which UK has a Double Taxation Agreement (DTA), there are no defined reporting requirements.
Income
Income can be taken at the age 55 or deferred until the age of 75 or later.
Note: Since 2017, 100% of the income taken from a QNUPS or a QROPS by a UK resident is subject to UK taxation.
QNUPS follows local rules in terms of determining income, depending on the jurisdiction where the scheme is established. Income drawn from a QNUPS may be liable to tax in the country of residence at the time the income is taken.
QNUPS are generally sold as shelters from IHT, rather than access for income by the member (which defeats the object of setting up a QNUPS).
The fact you can get up to a 30% tax-free lump sum at age 55+ is generally of no relevance.
Funding restrictions
With a QNUPS, there is no maximum limit on how much can be transferred. It is, however, recommended that funding be in the nature of pension funding – as a rule of thumb, 20% of annual income could be considered reasonable.
Contributions can be made from income derived other than from employment
Assets may not have to be liquidated before transferring them to a QNUPS. However, this may be difficult to execute in practice.
Age limit
Age limits for establishing or drawing down from a QNUPS depends on the jurisdiction of the QNUPS.
Inheritance tax and death considerations
You can designate beneficiaries for inheriting the funds. A QNUPS is exempt from UK taxes on death, unless the QNUPS member is deemed to have deliberately reduced the value of their estate immediately before death by transferring a significant part of their estate to the QNUPS.
As the HMRC has some discretion in the matter, it could be subject to HMRC mounting a challenge if a transfer occurred shortly before death, and taxes would then be applied.
Transferring a defined contribution pension abroad into a QROPS
If you have a UK-based defined contribution pension, you should be able to transfer your pension abroad to any qualifying recognised overseas pension scheme (QROPS).
Transferring a defined contribution pension to a QROPS should be the same as transferring to a new pension within the UK. Time taken for both is also likely to be similar.
Transferring a defined benefit pension abroad into a QROPS
Private sector defined benefit pensions (and some public sector pensions) are funded, which means there is a cash value associated with the pension, which makes it amenable to transfer to another provider, including a QROPS.
However, a transfer may not be possible if it is an ‘unfunded’ pension where pension commitments will be paid out of the current earnings of the organisation. This typically happens with the public sector. NHS is an example of a defined benefit pension that cannot be transferred.
A defined pension plan, while collecting regular contributions from the member, pays out a ‘retirement salary’ that is pre-determined. While the cash value can be transferred to another pension, the ‘retirement income’ will be lost, as the pension to which the transfer is made, will only pay out pension based on the ‘corpus’ that gets transferred. Hence, a careful evaluation of the pros and cons should be done. If the pension is also worth more than £30,000, consultation and advice from a financial adviser is required.
Overseas transfers of pensions
If you are thinking of moving abroad or even back to the UK, learn more about how pension transfers work here.
If you work in the public sector, you may find that your defined benefit pension is not eligible for an international pension transfer. For example, it is not possible to transfer an NHS pension abroad, regardless of whether it is a QROPS pension.
Obviously, the fact that this is a matter where HMRC has some discretion makes the matter subjective, and so HMRC could mount a challenge if a transfer occurred shortly before death, and taxes would then be applied.
Need help with a QROPS or QNUPS?
Thinking of moving overseas or returning to the UK? Concerned about how it will affect your pensions?
UK Pension Help can connect you to a qualified, regulated financial adviser who can answer any questions you might have about your QROPS or QNUPS and any questions related to a pension transfer.
Book a free, no obligation consultation so they can further assist you.