European QROPS | EU QROPS | EEA QROPS
UK pension transfers to Europe
QROPS 101 – In this article, you will learn how to transfer your pension to a European QROPS before Brexit.
If you are a British expat or a UK pension holder and moving to Europe or already living in Europe, you may want to know the options for moving your UK pension to Europe, particularly in light of Brexit, whether that is a hard of soft Brexit.
This article explores the options of moving from a UK pension scheme into a European retirement scheme via a transfer to a QROPS in Malta
“The main reason to move a UK pension to a QROPS in Europe is to get your pension out of the UK tax net, reinvest it in EUR and get your pension paid into your local bank in Europe in EUR whilst receiving tax-free growth & no tax on death.”
At its simplest, a QROPS or Qualifying Recognised Overseas Pension Schemes helps get your money out of the UK tax net and into Europe. We have many country-specific articles that look into the technical details of moving your pension to Europe, but here we will try to simplify the advice, if that is at all even possible.
Always contact a financial adviser and a local tax attorney with knowledge of Double Taxation Agreements to get fiduciary, ethical advice.
Everybody’s individual tax, pension & life planning situation is unique and requires tailored advice.
European QROPS – UK Pension Transfers to Europe
What does a QROPS achieve?
- Transfers your pension out of the UK and out of the UK tax net
- Great for UK expats moving to Europe and Europeans moving out of the UK and back to Europe
- Your pension can be transferred into a European QROPS in EUR
- Your pension can be paid into any bank account in your local country in EUR or to any offshore bank account
- Your pension monies can then be reinvested into ETFs in Euros or managed by a discretionary fund manager or invested in shares in EUR or any other currency of your choice.
- There is no tax on growth or death of a European QROPS as long as you don’t return to live in the UK
- Usually, you only have to pay local income tax on your pension in your country of residence in retirement*
- If you are ultra conservative, you can sit the entire pension scheme in cash or government bonds
- Future UK tax changes will no longer be able to affect your pension
- You can choose your heirs; perhaps this is a new partner or including other children as recipients upon death; in effect this is your ability to “re-write” the will for your pension scheme
- 100% goes to your named heirs on death
- Transfers are “grandfathered” into the current tax rules at time of the pension transfer out of the UK
- You must remain in the EEA for five years following a transfer or face a retrospective exit tax of 25% on the transfer value by HMRC in the UK. After five years, you can move to any country you like with no exit tax imposed.
- A Malta QROPS is a European QROPS suitable for anyone who wishes to reside in the European Economic Area (EEA). Malta is an EEA country with over 70 Double Taxation Agreements with countries all around the world
- *Income tax is usually 0% in Malta, if you live in the EEA, with the notable exception of Bulgaria, which is taxed in Malta instead, but you need to double check the Double Taxation Agreements as they may change at any time
- If no DTA exists and you cannot prove you are paying tax in your country of residence, Malta can tax you at source at up to 35% on income.
Income Tax on Your European QROPS by Country
A Malta QROPS is an appropriate QROPS for most members of the EEA, except Bulgaria.
These countries are NOT in the EEA – Switzerland, North Macedonia, Montenegro, Serbia, Kosovo, Bosnia and Herzegovina and Albania.
Members of the European Economic Area (EEA)
Personal income tax rates on a QROPS in Malta in the EEA (2018)
Austria – 0% tax in Malta, pay Austrian income tax of 25% – 55%
Belgium – 0% tax in Malta, pay Belgium income tax of 25% – 50%
Bulgaria – Taxed at up to 35% in Malta with 0% tax in Bulgaria; in the case of Bulgaria, you are better off leaving your pension in a UK SIPP or moving it to a Gibraltar QROPS, in which case, you will be taxed 2.5% in Gibraltar and a flat rate of 10% in Bulgaria; although we are still unsure of the effect on a Gibraltar QROPS of Brexit
Croatia – 0% tax in Malta, pay Croatian income tax of 24% – 36%
Republic of Cyprus – 0% tax in Malta, income tax in Cyprus is only a flat rate of 5% or 0% if you have a smaller QROPS. Note, This applies to expats only who are resident in Cyprus and not citizens of Cyprus. You can read more here concerning UK pension transfers to a QROPS in Cyprus.
Czech Republic – 0% tax in Malta, income tax in the Czech Republic is a flat rate of 15%
Denmark – 0% tax in Malta, income tax in Denmark is 12% – 52%
Estonia – 0% tax in Malta, income tax in Estonia is a flat rate of 20%
Finland – 0% tax in Malta, income tax in Finland is; please note annuities are taxed differently in Finland, but most QROPS cases will not be purchasing an annuity
France** – 0% tax in Malta, income tax in France is up to 45%; however, you can take the whole pension pot in the QROPS as a lump sum and pay an effective tax rate of 6.5%, however you then may pay a French succession tax of up to 60%, so it might be best to keep your pension wrapped up in a QROPS where there is 0% tax on death
Germany – 0% tax in Malta, income tax in Germany is 12% – 42%
Greece – 0% tax in Malta, income tax in Greece is 22% – 45%
Hungary – 0% tax in Malta, income tax in Hungary is a flat rate of 15%
Iceland – 0% tax in Malta, income tax in Iceland
Ireland – 0% tax in Malta, income tax in Ireland is 20% – 40%; a Malta QROPS might also avoid some other taxes in Ireland, read more here about a Malta QROPS for residents in Ireland
Italy – 0% tax in Malta, income tax in Italy is 23% – 43% plus municipal & regional taxes; however, under new rules in 2019, if you move to certain parts of Southern Italy there is an introductory 7% income tax for first six years following a transfer. You may also decide to take your whole pension as a lump sum in Italy within this first six years, but there may be inheritance tax and retirement planning consequences. You can read more about QROPS Italy here.
Latvia – 0% tax in Malta, income tax in Latvia is 20% – 31.4%
Liechtenstein – 0% tax in Malta, income tax in Liechtenstein is 1% – 8%
Lithuania – 0% tax in Malta, income tax in Lithuania is 20% – 27%
Luxembourg – 0% tax in Malta, income tax in Luxembourg is 8% – 42% plus a solidarity tax of 7% – 9%
Malta – 0% tax in Malta, income tax in Malta is up to 35%; however, any income sourced from outside Malta is tax-free which means a QROPS in Malta has 0% tax; British expats working in Malta also get taxed a flat rate of only 15% from any income they receive from working in Malta. You can read more here about Malta QROPS
Netherlands*** – 0% tax in Malta, income tax in the Netherlands is between 9% and 51.75%
Norway – 0% tax in Malta and income tax in Norway is a flat rate 15%,subject to certain considerations; tax on other income you earn in Norway & worldwide is subject to a personal income tax of 33.9% – 48.2%
Poland – 0% tax in Malta, income tax in Poland is between 18% and 32%; however, individuals running business activities (as sole traders or as partners in partnerships) can opt for a flat 19% income tax rate, subject to certain conditions
Portugal – 0% tax in Malta, income tax in Portugal is 14.5% to 48%; however, if you declare yourself as a Non-Habitual Resident in Portugal and have not become resident yet & purchase property in Portugal, there is no tax on a QROPS for the first ten years of being resident in Portugal. You can read more here about QROPS in Portugal
Romania – 0% tax in Malta, income tax in Romania is a flat rate of only 10%
Slovakia – 0% tax in Malta, personal income tax in Slovakia is 19% – 25%
Slovenia – 0% tax in Malta, personal income tax in Slovenia is 16% – 50%
Spain – 0% tax in Malta, income tax in in Spain is 19% to 23%
Sweden – 0% tax in Malta, income tax in Sweden is 32% – 57%; tax is 20% only if you live in Sweden for five years or less, read more here
**The treaty with France gives France exclusive taxing rights subject to certain conditions which if not fulfilled shift taxing rights also to Malta.
***The treaty with the Netherlands provides that where the payment is made in the form of a lump sum, it may also be taxed in Malta as the source state, subject to relief being then granted in the Netherlands in respect of the Malta tax suffered.
QROPS Set Up Before April 6th, 2017
If you have already set up a QROPS before April 6th, 2017, you can transfer your QROPS to any other QROPS jurisdiction. At the moment, New Zealand is a tax neural jurisdiction that allows full flexi-access drawdown with 0% tax at source or on death. Also, there is no maximum age to start drawdown, whereas in Malta, you must start drawing down income and take a lump sum at age 70, so you can simply use it as an inheritance shield. It could be also be useful if you are moving from Europe to other parts of the world.
Important – Please Read
Disclaimer: Please note, this should be used as a general guide only. This should be a starting point to explore the taxes & financial planning with your clients.
Double Taxation Treaties can be complex and change over time. Also, in some circumstances, you may be taxed differently due to your status. There are also tax allowances and tax deductions to be aware of. You really need to consult with a local tax attorney in your country of residence to understand the full tax implications of moving a pension.
As you can see from the table above, a pension transfer to a QROPS does not help to avoid paying taxes. What it can do is eliminate the death tax as long as you never to return to live permanently in the UK.
Also, it gets your pension out of the UK before Brexit and you can also transfer your pension into EUR into a European QROPS with strong double taxation treaties.
Typically, you will still pay local income tax & it is best to consult with a local tax attorney to arrange your affairs in a way which are tax efficient to make sure you are not paying more tax than you are liable for.European QROPS - UK Pension Transfers to Europe Before Brexit by Richard Malpass