Qualifying Recognised Overseas Pension Schemes (QROPS) allow British expatriates or foreign nationals who have worked in Britain for a period to transfer their UK pensions overseas. A QROPS must meet UK tax regulations. It also needs to be suitable for residents of the country in which they reside. An alternative to a QROPS is a non-resident or international SIPP. It is essential to take professional advice before undertaking a QROPS pension transfer.
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A QROPS pension transfer can provide an effective and flexible retirement solution, but you must understand the processes and pitfalls before going ahead:
A Qualifying Recognised Overseas Pension Scheme (QROPS) is a vehicle that facilitates the transfer of existing UK pensions. Wherever your retirement destination is, it is best to arrange your finances in the most flexible manner possible. The objective is to access your capital when you want, where you want, and in the currency of your choice.
It is essential to clearly understand pension legislation in your chosen country of retirement. After that, you need to select an appropriate product that allows you to benefit from both a tax and investment perspective.
You should note that the UK budget of Autumn 2024 delivered a new 25% tax on the overseas transfer of UK pensions; this includes transfers to QROPS. There are exceptions for individuals living in the same country that the scheme is established in.
QROPS offer a certain degree of flexibility in terms of benefits.
Below is an outline of the features of such schemes:
A tax-free commencement lump sum of 25% can be taken from an individual’s fund upon crystallisation of their pension in the UK.
HM Revenue and Customs (HMRC) rules allow individuals to access 100% of their UK pension fund after 55...
Expatriates who transfer their pensions into a QROPS have no obligation to purchase an annuity. Therefore, individuals can select funds that best suit their risk profile.
Retiring outside the UK on a sterling-based pension exposes your fund to unnecessary currency risk.
Rather than being restricted to a limited range of funds offered by one insurance company, QROPS allows you to access funds managed by any of the world’s leading investment groups.
Tax planning and pension planning go hand in hand. Assets held in a Qualifying Recognised Overseas Pension Scheme fall outside your estate for UK Inheritance Tax purposes if you die while living overseas...
The transfer of UK pension savings to an overseas pension scheme must not exceed the Lifetime Allowance (LTA).
There are rules and regulations to ensure that a transfer to a QROPS functions correctly. The QROPS rules set by HMRC are designed to complement and be consistent with UK rules. It is thus necessary that these rules are adhered to for the overseas pension scheme to be accepted by HMRC. The criteria outlined by HMRC for a foreign scheme to qualify as a QROPS include the following:
The previous UK tax charge of up to 55% on inherited pensions was replaced in 2015 by HMRC. Pension benefits can now be passed to beneficiaries tax-free in certain circumstances. There are several scenarios to consider should an individual die whilst living abroad:
Changes in legislation can affect the status of your QROPS. Expats from the UK must declare the value of their pensions, including those held in a QROPS to the Spanish fiscal authorities. Spanish residents must report income from a QROPS on their annual tax return. If you receive your pension lump sum whilst resident in Spain, it will be taxable in Spain.
A list of Recognised Overseas Pension Schemes (ROPS) can be found on the HMRC website. The ‘list’ consists of pension schemes that have informed HMRC that they meet the conditions to be a ROPS and have asked to be included. There are now over 1,000 QROPS to choose from across 29 different jurisdictions. European-based Expats seeking to move their UK pensions overseas are encouraged to seek out EU jurisdictions for their schemes, jurisdictions where a double-taxation agreement (DTA) framework exists.
For a scheme to be classified as a Qualifying Recognised Overseas Pension Scheme (QROPS), it must first be a Recognised Overseas Pension Scheme (ROPS) and provide benefits in respect of retirement, ill health, death, or similar circumstances. If it meets these requirements, the scheme must take additional steps to qualify as a QROPS as defined by the legislation.
Not all transfers to overseas or offshore schemes are recognised as being QROPS transfers. Therefore, it is necessary to verify that the QROPS receiving your UK benefits is on a list published by HMRC. If the scheme is not on the ROPS list, any transfer would be treated as a transfer to a non-qualifying overseas scheme. This may result in substantial penalties being applied by HMRC at the time of transfer.
This list consists of pension schemes that have informed HMRC that they meet the conditions to be a ROPS and have asked to be included. It is important to note that QROPS providers self-certify the ‘list’; HMRC does not have an official approval system for ROPS. Therefore, it is the individual’s responsibility to determine if there is tax to pay on any transfer of UK pension savings.
The ‘Pension Schemes Services’ department usually updates the list twice a month. A scheme’s name will be promptly removed from the list once HMRC knows it has ceased to be recognised. Furthermore, should HMRC have concerns about the scheme’s status at any time, the scheme’s name may be removed whilst HMRC carries out further checks.
There can also be certain disadvantages in transferring to a QROPS, including the potential deregulation of the scheme. Schemes that are to be removed from the list are notified in advance by HMRC; the reasons for delisting are explained to the scheme manager. A QROPS is generally delisted if UK Pension administrators find insufficient pension regulation in a given jurisdiction. HMRC is not obligated to make public its reasons for delisting a particular scheme. Therefore, members concerned about their QROPS being removed from the published list should approach their scheme manager in the first instance.
Numerous territories are recognised as suitable for hosting overseas pension schemes. It is essential, however, to weigh up the pros and cons of each jurisdiction.
Since 2009 Malta has established itself as a listed QROPS provider. It has a reputation for being a robust and well-regulated jurisdiction. Malta has the advantage of offering EU country-based schemes to the marketplace. Malta has an existing double-taxation agreement (DTA) framework in place. This framework consists of 59 countries, including the UK.
When an individual buys a QROPS, it is regarded as a Malta pension, not a Malta trust. The trust is an administration vehicle and is used as a way of protecting the policyholder’s rights. The duties of the trustees are thus crucial in terms of how they look after an individual’s affairs/invest money.