In a nutshell, they suggest you will lose access to your UK pension, pay more in tax and have less control post the Brexit apocalypse. However, the actual position on UK pensions will not actually change post Brexit as these rules have never been determined by the EU. 2nd Floor Since 2012, the LTA has been gradually falling, and now, as from 6th April 2016, this is set at just £1 million. Maybe try searching? As David has applied for LTA protection, his fund value is less than his protected allowance (£1,200,000 / £1,250,000), and he is able to transfer to a QROPS with no LTA tax charge due. He withdraws 25% as his Pension Commencement Lump Sum (PCLS) with the remainder used to provide him with a regular income through flexible drawdown. These bonds are sold by offshore life insurance companies such as Utmost Worldwide (ex-Generali), Old Mutual International (soon to be Quilter), Friends Provident International, SEB and RL360. Additionally, on your death, your beneficiaries may pay an additional income tax charge in the country that they live in. As a result, it is much easier for an adviser to recommend that QROPS funds are invested in such investments. This process will also apply to the If David had stayed in his SIPP; and assuming he made no further contributions, thereby ensuring he retained his Fixed Protection 2016; when he came to take benefits from his fund he would have been liable to pay a LTA excess tax charge of 25% of the excess over £1,250,000. However, if there is no DTT in place between the UK and your country of residence, or if the DTT specifies that tax will be imposed in the UK, then a withholding tax of 20% will be applied in the UK (on pension income above any unused Personal Allowance). This means, if the value of your UK pension fund is close to the LTA, it may be worth considering a transfer into a QROPS to avoid being taxed on your pension savings above the LTA in the future. In the vast majority of cases that I have seen where an expatriate uses a QROPS, there has also been a portfolio bond in place to “hold” the investments. If the QROPS is in a country that taxes pensions at a minimal or even a zero rate, a pension transfer can potentially have tax benefits. In particular, if you access a large amount of the fund while outside of the UK and then return to live in the UK, all within a 5 year period. If an individual has less than £1m in pension benefits at 5/4/2016 they can apply for FP. If your pension scheme provides a guaranteed annuity rate (GAR). Calle San Vicente Mártir 85, 8th Floor Once in the QROPS the funds will not be subjected to further testing against the LTA, and the members funds can continue to grow without having to face the unwelcome sight of a HMRC Lifetime Allowance excess tax charge in the future. Anything that you don’t fully understand. a SIPP). 20-22 Wenlock Road Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. These are just some of the “exotic” investments that I have seen held within QROPS. As David’s funds were tested against the LTA immediately upon transfer to his QROPS, they won’t be tested against the LTA again and so he has no tax to pay. But opting out of some of these cookies may have an effect on your browsing experience. Information provided in this website is based on legislation as at the time of writing. These cookies will be stored in your browser only with your consent. If the provider does offer QROPS 1 the fees here tend to be higher. When a member of a pension scheme takes benefits, dies and at certain other times, the amount of the LTA used is tested. I have also seen many instances where the way that a QROPS has been structured leaves a lot to be desired. Individual LTA Protection gives retirement savers a new LTA to the lower of the value of their pensions on April 5, 2016 or £1.25 million. We'll assume you're ok with this, but you can opt-out if you wish. However, for the purpose of this post, the most relevant is when the funds are being transferred to a QROPS that is established in a country within the European Economic Area (EEA) and the member is also a resident in a country within the EEA. This can allow tax to be taken in the country of residency. UK defined contribution schemes have no UK tax deducted on death if the holder is under the age of 75. 09910371): Registered Office: 20-22 Wenlock Road, London, N1 7GU. QROPS 3. a QROPS) means that income tax on pension income can be legitimately avoided, even where there is no UK double tax treaty with the country. 2019/20 BCE 1 : Recognised overseas transfer factor = £896,750/£1.055m = 0.85 Momentum, Sovereign, Baker Tilly, IVCM) to another provider, then you will face a fee to do so (typically £2-3,000). The member must claim this enhancement no later than 5 years after 31 January following the tax year in which the transfer payment was made. A Relevant Withdrawal is an amount (other than an annuity) which the member is paid from the member’s drawdown pension fund or flexi-access drawdown fund. First Equitable (UK) Ltd (Comp. David now decides to start drawing benefits from his fund. Over the past few years QROPS rules have changed somewhat and this has seen some of the previously dominant jurisdictions of the QROPS market such as the Isle of Man and Guernsey be replaced by the likes of Malta, Gibraltar and even New Zealand. iExpats aims to help expats make their money work harder by providing the latest financial news from around the world, Disclosure: iExpats.com does not provide financial, investment or tax advice. However, they are not always as flexible or comprehensive as those that the UK has. Access up to 30% Tax Free Cash – subject to living for a minimum of 5 years outside the UK. In the 2006/7 tax year the Lifetime Allowance was set at £1.5 million and gradually increased to its peak of £1.8 million for the 2010/11 and 2011/12 tax years. Liverpool Contrary to popular belief then, QROPS were not some tax loop hole or other form of generosity from HMRC, but the result of an EU Directive. UK Government recognised overseas pension schemes notification list, Receive my weekly expat retirement digest. Taxation will be a key issue here and it will be important to ensure there are Double Taxation Agreements in place where possible. Anyone who has scheme-specific lump sum protection. We use cookies to ensure that we give you the best experience on our website. People overseas who are likely to exceed £1m in pension funds by retirement. Retaining this benefit could provide you with a higher level of income by allowing you to purchase an annuity at a fixed rate that is considerably higher than current rates. This is for QROPS in excess of £100,000. However, if you feel that your financial adviser is not pro-actively managing your pension or is not living up to expectations, then you can always replace them with another adviser without any cost or penalty. Spain No. I will address both the positives and negatives in this guide. In reality, it is possible for investors to secure the same benefits of a structured product through a well diversified portfolio of low cost index funds, without the complexity, lack of liquidity and hidden costs. There are no limits on contributions or fund sizes. These are usually highly complex products that are only suitable for professional investors. The author does not accept any liability for people acting without personalised advice. If you would like to learn more and explore whether a QROPS could form part of your retirement planning strategy, contact us today and request you own free financial review. Expat pensions after Brexit – What can we expect? Is your money benefiting from diversification? In future years the LTA is expected to increase in line with the Consumer Prices Index (CPI). Clients are often told that where there is a commission it is FREE advice which is understandably enticing. Teak plantations, store pods, airport parking places, second hand life insurance policies; anything that sounds too exotic. To facilitate this they will apply surrender penalties of up to 10% to your bond should funds be withdrawn in the early (first 5-10) years. You can transfer assets held in a QROPS to a UK Self Invested Personal Pension (SIPP). This is clearly a complex area and simply illustrates the need for each individual to receive impartial independent advice. London It does not give individual or specific advice on which products or services are the most appropriate for individual’s particular circumstances. You also have the option to opt-out of these cookies. The reason that I write this blog is to help busy expats make better retirement decisions. also have their own Double Taxation Treaties with various countries. Currently £1.055m (tax year 2019/2020). Therefore, please check for later articles or changes in legislation on official government websites. Please note that no further contributions could be made. With some QROPS, the PCLS can be up to 30% of the pension value. This may actually put a QROPS at a disadvantage over a UK pension and so should be one of the factors taken into consideration before transferring (or revisited if your circumstances change post-transfer). In terms of tax, the position has always been dealt with individually by national governments with respect to any Double Tax Treaty. If a transfer payment is from a Recognised Overseas Pension Scheme (ROPS) or a Qualifying Recognised Overseas Pension Scheme (QROPS) the member can apply to HMRC for an enhanced Lifetime Allowance (LTA). However, there are a few countries where transferring pension rights to an overseas pension scheme (i.e. Therefore if you are resident in the EU, you need to transfer your UK pension to a QROPS pronto. For example, if within five years you move from Spain to another country that is not in the EEA, then the OTC will then be payable. Airport car parking spaces, store pods, overseas property developments, teak plantations and truffle trees, care homes, second hand life insurance policies. Whilst the pension freedoms introduced in April 2015 which gave individuals greater flexibility on how they choose to use their funds has reduced the attractiveness of using QROPS, there remains certain circumstances when it will provide clients with useful benefits. You should not construe the views expressed in this website as personal financial advice. A QROPS (or a SIPP) enables you to get all your pensions transferred to the same place, where you can access them online whenever you want, giving you greater visibility and making managing risk easier. If you are living overseas, income from UK pension arrangements is taken according to the relevant Double Tax Treaty (DTT). While they all offer low/zero commission versions of their products, they are rarely used by advisers. Full details of the FOS can be found on its website at. In fact, there have been many cases where transferring to a QROPS has proved to be the entirely wrong course of action. It is not applicable to funds derived from UK pension transfers to QROPS before 9 March 2017. The main function of QROPS is that it allows British expats to move their pensions abroad. The various QROPS territories (Gibraltar, Malta, Isle of Man, etc.) In addition, any UK resident beneficiaries will have no tax to pay on anything that they receive. This is the name given to the form of protection that allows such individuals to be paid a pension commencement lump sum that is more than 25% of the value of their total benefits coming into payment from the registered pension scheme. Over the next six years until David’s retirement he achieves net annual returns averaging 7% from his QROPS, and at age 60 his fund is valued at £1,800,000. You may not need to do anything (especially if your pension fund exceeds or is likely to exceed the Lifetime Allowance). If the QROPS and the SIPP are with the same company, then you maybe able to do so without cost. Finally, it is worth noting that non-UK resident beneficiaries may be subject to local succession/inheritance taxes in their country of residence (as always, local tax advice should be sought).