Is This the End of the Road for QROPS?
This could be the end of QROPS as Osbourne is deferring any changes for UK pensions in favour of a green paper to be presented in the next Budget. So, don’t expect any changes in the Autumn statement. Also, this is the last chance to transfer pensions that range from 1m GBP to 1.25m GBP to avoid UK taxation on that portion. The lifetime allowance for pensions is about to shrink in April from 1.25m GBP to 1m GBP. So, if you have a 1m+ GBP pension pot, this is your last chance to transfer in an efficient tax manner or you will take a larger tax hit.
The tax you will pay on any lump sums you take above 1m GBP will be taxed at 55% on a lump sum or 25% if you take as an income from April 2015. But, you can avoid these taxes for up to 1.25m GBP in the current tax year.
If you are considering moving abroad, you may wish to transfer your pension before April for tax efficiency. Although this is only suitable for those who are already offshore or moving offshore in the very near future as otherwise you would lose your tax relief on your UK pension contributions.
This may be the end of expat pension tax loops and perhaps the end of UK pensions in their current guise. It is hard to predict, but George Osbourne has decided not to make any changes in the Autumn statement to its Pension Tax consultation until the next budget.
There had been speculation Mr Osborne would use the Autumn Statement next month to outline the government’s strategy, however he stated on Tuesday: “It is a completely open consultation that will lead to a genuine Green Paper… we will respond to that consultation fully in the Budget.
The FT notes that this may bring in big changes to pension changes. There had been rumours that UK pensions would be taxed ISA style on the way in and on not on the way out. That would be a complete U-turn to the way pensions have been handled for hundreds of years. It isn’t a surprise though given Osbourne’s changes in the last budget to allow full flexible drawdown which is really a tax grab to get pensioners money early to boost government coffers.
The sensible pension planning which has underpinned British society for hundreds of years has been blown away. Final salary pensions are dead and now it looks like UK pensions may face huge changes.
We know HMRC were in talks with the Australian tax authorities about their Superannuation pensions, where Aussies are taxed on the way in and then draw their pensions tax free at retirement.
Pension Tax and British Expats
What does this mean for British expats? We aren’t sure, but whilst the tax loopholes are still open, if you are permanently moving abroad, you may wish to explore the opportunity to move your pension out of the UK tax net while you have the chance.
It is unknown how the budget will change next April or what the effect will be. But, considering in the past, HMRC had slammed the door shut on pensions in the Isle of Man, Guernsey, Gibraltar, Singapore, HK, New Zealand, Qatar, Australia, Switzerland and other countries, all we can say is there will be changes.
Some of the jurisdictions above rewrote their tax and pension rules then re-opened for QROPS business. The good news is tax in the past in these jurisdictions have been “grandfathered”. In other words, if you moved into a Guernsey QROPS in 2006, even though it has now been delisted, HMRC are still allowing you to draw your pension income tax free, with no unauthorized tax charge.
So, we are recommending clients to take advantage of QROPS whilst they are still available. There are a few jurisdictions available now which can allow full pension freedoms and flexible drawdown whilst being tax efficient.
In fact, in many cases, you could end up paying zero taxes.
Please contact one of our QROPS specialists today to find out the latest options.Is This the End of QROPS? Last Chance to Transfer 1m+ GBP Pensions Abroad for Tax Efficiency by Richard Malpass