Beginners Guide to QROPS
This guide is to help you to quickly and easily understand about QROPS (Qualifying Recognised Overseas Pension Schemes), and what action to take next.
If you have a UK pension plan and you currently live or plan to live overseas, then you can transfer it into a QROPS. This will give you much more control and better tax breaks on your pension for your future life in a new country.
What are the benefits of QROPS?
Because of the way a QROPS works, you can get these main benefits:
• Manage your fund in a much more tax efficient way - make withdrawals and payments at a much lower rate of tax
• More flexibility in investment choices - manage your fund and assets yourself or through a financial advisor
• Get your income in local currency
• Not required to purchase an annuity - so don't pay UK tax on death and leave all unused fund to your beneficiary
How do QROPS work?
QROPS are approved by HM Revenue and Customs and designed to make it easier for people who want to retire abroad and free themselves from certain regulations and taxes levied on UK-based pension funds.
It works because although the company running the QROPS must be regulated and taxed in the country that it's based, it is able to base itself in a country which has much lower tax rates than the UK, and different regulations governing pension funds.
Then after five years of setting up your QROPS, transferring your pension fund and being non-resident from the UK, your QROPS provider no longer has to declare your withdrawals or payments to HM Revenue and Customs, or be bound by certain UK pension regulations.
You will then only be liable for the lower taxes and more flexible regulations levied by the country your QROPS is based in, and your new country of residence.
What are the downsides with QROPS?
To be able to function as a QROPS it must be registered and supported by HM Revenue and Customs. However, HM Revenue and Customs still have the right to de-regisiter the QROPS if they feel they are not providing a service within the agreement.
If this happens to the QROPS you are using, you will then lose the tax benefits of the QROPS and be liable for any penalties regarding the transfer of your pension funds outside the agreement of a QROPS.
The way to avoid this is to only take independent financial advice so you get recommended established and trusted QROPS, which has less risk of being de-registered.
Transferring your pension fund into a QROPS
Transferring your QROPS can take about two to three months, once you have given your financial advisor the power to assess your current pension scheme.
The usual way is to liquidate your UK fund into cash (if you have assets) before the transfer, as this can make the process much quicker than trying to transfer assets.
Given that you are not limited in your choice of QROPS, regardless of where you're moving to, it means that there should be a QROPS suited to you based on your current pension fund and investment goals.
HM Revenue and Customs will then only be notified of payments into your QROPS for the first five tax years of your non-resident status. After that time you will be bound by the tax laws and pension regulations of the country issuing your QROPS, and your new country of residence, which should give you much greater freedom in using and investing your pension fund compared to in the UK.
What happens to your QROPS in event of death?
Because you are not required to buy an annuity, it means that should you die with remaining funds, all these remaining funds can be passed on to your beneficiaries, and not be subject to usual UK taxes.
Conclusion
If you plan to retire abroad then transferring your UK pension fund into a QROPS will give you much better tax benefits, and much more flexibility with your money and how you access it.
The important thing is to make sure you get sound independent advice on picking a QROPS that is right for your situation, and that it is established and not at risk of being de-registered.
For more information about QROPS and your specific situation, contact us for some independent advice.
To download this information as a PDF, click here
Expat Pensions is Europe's leading authority on QROPS
