A Qualifying Recognised Overseas Pension Scheme (QROPS) offers anyone with a UK pension an opportunity to transfer their pension offshore. QROPS, which are recognised by the HMRC, are an attractive option for anyone looking to emigrate and retire to another country where they can safeguard their assets and maximise their pension.
A UK pension transfer to a QROPS offers numerous benefits but there are costs incurred by the individual when they choose a transfer.
What You Need to Know Before Applying
Each QROPS has its own charges, and costs vary between providers and jurisdictions. Various factors determine the QROPS costs of any particular scheme and it’s recommended to research any QROPS with careful consideration been given to the benefits of each scheme. When taking into account the enormous benefits of investing in a QROPS, the costs are minimal but it’s extremely important that you take these costs into account before taking a QROPS transfer.
Normally, there are three components to QROPS1 costs, some of these are a once-off, some are fixed and the balance based on a percentage basis. If you have a small pension fund then the costs may be quite high, but there are different QROPS options available for different pension values. It’s essential that you research your options and carefully weigh up the costs and benefits of the particular QROPS.
- Setup costs
- Annual management fees
- Underlying fund management
Each QROPS transfer is different; the costs vary according to the jurisdiction, service provider and particular fund you have chosen.
- Setup costs – The setup costs for a QROPS transfer is usually around 1% of the value of the fund or a fixed fee of £750 to £1500
- Annual management fees – The annual management fees fluctuate anywhere between £300 to £1500 p.a.
- Underlying Fund Charge – The underlying fund charge will differs with each QROPS pension depending on the specific fund you have chosen
The costs involved in transferring and investing in a QROPS are usually higher than the normal UKpension costs, but considering the benefits that are available, it’s hugely advantageous for those with UK pensions living overseas to take a QROPS. There’s an enormous cost to keeping your pension in the UK; you lose 50% of your pension upon death, whereas with a QROPS your pension fund remains intact for your beneficiaries. Theoretically if a QROPS cost you less than 50% of your fund amount, it would still make sense to opt for a QROPS in most circumstances.
A transfer to a QROPS must provide sufficient tax savings to justify the setup costs. There’s no statuary minimum value for a basic QROPS transfer; a fund with a value of say, £25000 might not be a viable option for a QROPS transfer when considering the charges on this amount – and the benefits will not be substantial. There are a number of providers that have QROPS offerings with slightly less flexibility but lower costs where the benefits offered far outweigh the costs.
When QROPS was first introduced there were steep charges for each QROPS transfer, however the market has become more competitive and this has changed with providers charging fees as low as £500 p.a. (excluding fund charges).
When taking a QROPS your taxable amount payable on capital and income is determined by the taxation of the jurisdiction2 in which you are resident. With this in mind you should be able to choose a destination where you receive the greatest tax relief; tax laws vary from one country to another but many are more favourable than those in the UK. Due to the changing nature of the tax landscape in each country it makes sense to discuss this with a tax specialist in your jurisdiction.
Before making any decisions on a QROPS, prospective clients should to talk to a reputable specialist adviser3 (who may charge for their services, but in many instances their fees are linked to performance), as the savings and growth they can generate with your pension will far outweigh their QROPS costs.
British expats who have retired overseas and are now looking to transfer their UK pension abroad have it easier now than in the past; many of the restrictions governing UK pension transfers have been removed for those investing in a QROPS.
There are enormous benefits for individuals transferring to a Qualifying Recognised Overseas Pension Schemes (QROPS) as they gain more control over their pension planning with investment flexibility and tax relief. However, there are some points to consider with regards to QROPS tax implications before transferring to a QROPS scheme.
When transferring your UK pension to a QROPS there are tax implications4 which are dependant on the tax regulations of your chosen jurisdiction, investing in a QROPS fund does not imply that you are exempt from paying tax.
QROPS are subject to legislation by Her Majesty’s Revenue and Customs (HMRC5 ) which will approve an overseas scheme which meets certain criteria and provided that it’s regulated and taxed as a pension in the country (jurisdiction) where it’s based and you are resident. You may be liable for tax and the amount of tax payable will depend upon the income and capital received from your QROPS.
There are potentially substantial tax benefits to be had when making a QROPS pension transfer. The tax implications of transferring to a QROPS need to be thoroughly examined and the rate of taxation that a QROPS in a specific jurisdiction will attract must be fully understood. Additionally the tax benefits should be accurately measured to ensure that they outweigh the set-up costs and charges of transferring to a QROPS.
It is not a requirement to invest in a QROPS where you are currently resident; you may choose a QROPS in a jurisdiction where the tax regulations are more favourable i.e. where the rate of income tax is low or in a foreign country where non-residents are not taxed.
There are basically three distinct sections that QROPS tax implications can be divided into:
- Tax charges in the first 5 tax years
- Tax charges after the first 5 years
- Tax charges on your estate
Tax Charges In The First 5 Tax Years
Individuals who transfer their UK pension to a QROPS will not have to pay any tax charge in the first 5 tax years, subject to the limit of the lifetime allowance which currently stands at £1.5 million.
Tax Charges After the First 5 Years
Tax is charged on the income and capital after the first 5 years have elapsed, depending upon the jurisdiction of your QROPS pension scheme.
Tax Charges on Your Estate
In the UK a pension scheme is not regarded as an asset to be passed on to your heirs whereas a QROPS is classified as a pension but avoids any estate duty. This tax relief means that the entire value of your pension fund can be passed onto your beneficiaries and in many instances it’s used as an effective estate planning tool.
A QROPS offers a large number of investment options so it’s recommended that you seek professional advice before investing in a QROPS in order to safeguard your investment and maximise your returns. A specialist financial adviser will be able to offer you the best QROPS options in your chosen jurisdiction to reduce the QROPS tax implications, taking into account your specific requirements and circumstances.
British expats who are looking to retire overseas have a number of frequently asked questions with regards their UK pension transfer to a QROPS.
Here we answer the many questions and offer advice; addressing their concerns so they have a clear understanding of their options when transferring a UK Pension to a QROPS.
Here Is An Extensive List Of QROPS FAQ:
What’s a QROPS?
A QROPS (Qualifying Recognised Overseas Pension Scheme) is an HMRC approved pension scheme based outside the UK. QROPS pension plans were introduced in April 2006 by the British authorities to facilitate the ease of a UK pension transfer to a fund in another country.
British expats who retire abroad can now get more control over their pensions plans and receive their pension without difficulty when they transfer to a QROPS while at the same time safeguard their assets and maximise their retirement benefits.
Which QROPS Jurisdiction?
An understanding of the key factors and benefits that should be offered by QROPS is the first step in choosing where to transfer your pension scheme. A QROPS jurisdiction must be chosen according to your specific needs; some offer benefits with more tax relief and others are selected for their investment flexibility. It’s important to invest in a politically stable QROPS jurisdiction that has sound regulation and a well respected financial system.
Do I Qualify for a QROPS?
There are certain requirements that need to be fulfiled before one is able to transfer your UK pension to a QROPS; factors such as nationality and tax residency status have an impact. Other issues such as the type of pension structure and whether the individual has taken benefit can affect whether you are able to invest in a QROPS. You need to be able to answer ‘Yes’ to the following:
- Have you lived in the UK but now reside or work overseas?
- Do you have a personal or corporate UK pension (NOT a British Government or State pension)?
- Are you are living in a foreign jurisdiction or planning to move abroad from the UK within twelve months?
What Are The QROPS Costs?
Each QROPS has its own charges and these costs vary between jurisdictions and providers. Before transferring to a QROPS, individuals must have an understanding of the costs involved when establishing a QROPS as well as the minimum values. The question of whether or not to purchase an annuity and also if it’s necessary also needs to be considered. When looking at the enormous benefits of investing in a QROPS, the costs are minimal but it’s extremely important that you take these costs into account before taking a QROPS transfer. The costs associated with a transfer to and investments in a QROPS are usually higher than the normal UK pension costs, these involve set-up costs, annual management fees and underlying fund management charges.
What Are The QROPS Tax Implications?
A QROPS is a tax efficient structure, the amount of tax payable on capital and income received from your QROPS is determined by the taxation of the jurisdiction in which it’s based. There are tax implications when transferring to a QROPS and these need to be thoroughly examined, any tax benefits should be accurately measured to ensure that they outweigh the costs of transferring to a QROPS.
What Types Of Assets Can A QROPS Hold?
The structures and benefits of different QROPS vary so it’s important to understand the manner in which assets are handled by a particular QROPS. Some QROPS schemes allow for the transfer of an existing pension fund directly into a QROPS whereas others will require your assets to be liquidated and will only transfer cash. QROPS can hold a portfolio of different asset classes and purchasing a property with a QROPS is possible once certain conditions have been met.
What Are The Implications For My QROPS If I Move?
If you meet the criteria and have sufficient funds, transferring your pension to a QROPS is a straight forward matter, but one should also understand the implications further down the line. When you retire overseas and take advantage of the QROPS benefits you can continue to visit Britain and still remain a non tax resident of the UK, but there are restrictions on your length of stay before UK taxes apply. Consider the implications should you wish to return to the UK permanently within 5 tax years, or you can simply move to another country.
What Is The Relationship Between HMRC And QROPS?
A QROPS is a pension fund recognised by the HMRC as being qualified to receive transfers from an authorised UK pension fund. There are reporting requirements to the HMRC when you transfer your UK pension to a QROPS; the laws and regulations governing a pension transfer are extensive and potentially restricting.
A QROPS provides British expats with an opportunity to invest in a pension fund offshore, with the associated flexible investment options and tax benefits which would normally not be allowed in the UK. Specialist financial advisers are in the best position to advise people retiring overseas on the opportunities and benefits of transferring your UK pension to a QROPS.