By Des Cooney
What makes a scheme a QROPS?
A number of rules act as a guideline for those eligible for a UK pension transfer overseas. As in every process, it is important that there are rules and regulations to make sure that a transfer to a Qualifying Recognised Overseas Pension Scheme (QROPS) functions correctly. It is thus necessary that these rules are adhered to in order for the overseas pension scheme to be accepted by HMRC. The criteria outlined by HMRC for an overseas scheme to qualify as a QROPS include:
- The pension scheme must be established outside of the UK
- It must be recognised for tax purposes in the country where it is located
- It must be regulated in the country in which it is established
Transfers to overseas pension schemes
The transfer of UK pension savings to an overseas pension scheme must not exceed the lifetime allowance (LTA). The LTA is a limit on the amount that an individual can accrue in a UK tax-privileged pension fund. This is currently set at GBP1 million. When an individual makes a transfer from a UK registered pension scheme to a QROPS, while resident in a country such as Spain, Portugal or France, it is deemed as being a Benefit Crystallisation Event (BCE). When benefits are taken in the form of a pension commencement lump sum and / or income withdrawal, the value of the savings being crystallised is tested against the available Lifetime Allowance. Should the value of the total UK pensions exceed that limit, an individual would be subject to a tax charge of up to 55% on any BCE upon retirement or death.
The aim of the QROPS regime is to mirror that of a regulated pension scheme in the UK. As such, any person who leaves the UK and takes their pension savings with them, should be in a similar position as a person who remains in the UK with their pension savings. The QROPS rules set by HMRC are thus designed to complement and be consistent with UK rules.
QROPS Rules – Age that benefits can be taken
Benefits, including lump-sum payments, from the transferred funds, may not be distributed earlier than the normal retirement age of 55. An individual’s must have been a non-UK resident for five complete tax years before accessing benefits.
QROPS Reporting requirements
HMRC Rules state that the Revenue should be notified if a payment is made within the first five tax years of a member becoming non-UK tax resident. Any benefits paid before five complete tax years of non-UK residency and not in accordance with UK Pension rules will be deemed an unauthorised payment. The scheme manager does not have to notify HMRC if the payment is made 10 or more years after the day of the transfer that created the Qualifying Recognised Overseas Pension Scheme for the ‘relevant member’, provided that the person is non-UK resident for the duration of this period. This 10-year ‘bracket’ for reporting payments took effect as of 6 April 2012. The rules on the transfer of pension funds from a UK registered pension scheme to an overseas pension scheme have now become more streamlined in order to simplify the administration process.