What is a QROPS and do you need one?

One of the many advantages that expats typically enjoy is that they can use their ‘offshore’ status to their financial advantage in retirement. A popular way to capitalise on being an expat is to transfer UK pensions to a QROPS, which can offer greater levels of flexibility, convenience as well as tax, estate planning and currency advantages.

What is a QROPS?

Launched in 2006, Qualifying Recognised Overseas Pension Schemes (QROPS) are pension schemes based outside the UK that meet HM Revenue & Customs (HMRC) rules to receive transfers from UK-registered pension funds. Schemes only make the HMRC list if they meet terms similar to UK pensions, including not being accessible before age 55.

Tax efficient

EU residents can transfer UK pensions into an EU/EEA-based QROPS tax-free. But transferring into a QROPS which outside the EU will mean a 25% UK ‘overseas transfer charge’ (OTC) is liable. In a QROPS, pension funds are no longer burdened with UK taxes on income and gains and no longer count towards your lifetime pension allowance (LTA). If you are already over the limit when transferring, 25% is charged on the difference, however the funds become will not be hit by from further LTA penalties. Money within a QROPS will only be taxable once you take from it in your country of residence.

Five-year rule

The QROPS provider must report to HMRC all payments made to the policyholder when he/she has been a non-UK resident for less than five UK tax years.

Other advantages

• Access to a 30% tax-free lump sum free from UK tax after the age of 55
• Flexible drawdown
• Assets can be held and income drawn in a currency of your choice, which means you can reduce conversion costs and currency volatility
• No requirement to buy an annuity
• The option to leave the fund tax free to named beneficiaries after 5 complete tax years of non-UK residency
• Flexible to a wide range of funds to suit your circumstances and risk appetite, and you don’t have to over-exposed to UK assets
• Consolidation of multiple UK pensions into one scheme

Malta QROPS

It is generally accepted that Malta QROPS are amongst the most suitable for most expats. This is for three key reasons. First, Malta is a member of the European Union; second, it is a well-established and well-regulated jurisdiction with a strong legal system; and third it has a raft of Double Taxation Agreements.

Advice is critical

Transferring your pensions into a QROPS has many advantages but it is also a complex process. As such, you should seek financial advice from a cross-border financial specialist and explore all the legitimate options available.

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