Qualified Recognised Overseas Pension Schemes (QROPS) can be a great, tax efficient option for British expats.
What is a QROPS?
A QROPS is a UK government approved scheme that your UK pension can be transferred into. The QROPS itself doesn’t have to be based in the UK, but it does have to be on the list of official providers. It means you can amalgamate several pension income sources altogether and manage them from one account. It applies to most private and corporate pension schemes, but not your UK State Pension.
If a QROP is not for you and you are a UK non resident paying UK tax on your private and or government pension income tax relief is often available. It all depends on your own set of circumstances and the double taxation treaty (if there is one) between the country you live in and the UK.
Why would I want to join a QROPS?
There are many benefits to joining a QROPS. They offer greater flexibility by enabling you to use a currency of your choice. Your pension income will no longer be subject to UK Income Tax and Inheritance Tax. That’s a saving of 20% of your pension total on just the Income Tax. There is no Lifetime Allowance maximum so you will never have to pay a Lifetime Allowance charge for exceeding the limit (as you would with a UK pension). Other benefits include being able to access a higher lump sum at 55, never having to buy an annuity and increased protection of your pension sum from creditors or claimants.
Should every expat find a QROPS?
As with most tax affairs, it is not as simple as all British expats should join a QROPS. You really have to consider your entire financial future and all the implications of a QROPS. For some people with ‘safe’ pensions, it may be better to leave them with your UK provider. There are all sorts of factors that affect the impact of belonging to a QROPS, such as your residency status, where the QROPS is based and your future plans. You need to find solid, qualified financial advice and make a carefully considered decision.
Are there any major downsides to joining a QROPS?
The biggest negative when joining a QROPS is part of the government’s drive to crack down on tax avoidance. They have introduced a new Overseas Transfer Charge which applies to any funds moved from 9th March 2017. You have to pay a fee of 25% of your pension funds’ total as a transfer fee to the UK government before the transfer is completed. They hope to limit the number of people using QROPS as a tax avoidance strategy and get some of the money they will lose on future pension income tax payments. This doesn’t apply to all QROPS, have a read of our QROPS Guide for further details.
QROPS Scammers
Unscrupulous, unregulated financial advisors have found a new target in potential QROPS clients. They comb through Linked In profiles for UK expats whose employment record indicates that they probably have a UK pension. A high pressure cold call follows, with the advisor attempting to convince the unsuspecting taxpayer to become involved with a QROPS.
But be suspicious, they are only after the massive commission they get for signing people up to a QROPS. They do not have any intention of giving you unbiased, sound financial advice based on your financial situation. Do not make any decision about this in a hurry and certainly not because of persuasive sales people.
They may well be giving you some accurate information, but without the whole picture you are not able to make the best choice for you.
Worth considering…
For many expats a QROPS is a great way to maximise their pension income and it is certainly worth serious consideration. But it is not your only choice and it’s not the best option for everyone. It is crucial to seek professional advice before making a commitment.
