QROPS Pension Transfers for Higher Rate Tax Reduction
Thanks to new rules passed in Isle of Man, QROPS pension transfers for higher rate tax payers now make even more sense and can lead to the maximum higher rate tax reduction benefits. The new Isle of Man 50c law has meant that higher rate tax payers now have a greater choice of options for transferring their pension schemes offshore for higher rate tax reduction.
QROPS Pension Transfers for Higher Rate Tax Reduction
What does this mean for higher rate tax payers?
For higher rate tax reduction, you can now take advantage of QROPS pension transfers to maximize their wealth and lead to higher rate tax reduction. They can free up the increase in value of any pension transferred so that they can use that money freely for investment wherever they want. So, if someone transfers a £1,000,000 pension at 53 years old and it grows at 10% per year, they will have £1,948,717 at 60.
So, they can use this extra million pounds to invest in anything . This means they could use this extra cash to purchase residential property. So, you could buy a couple of holiday homes and rent out your main house in the UK, rent out a house in Spain and live in Thailand for example. We have clients who divide their time up between Spain and Thailand depending on the seasons, whilst renting out their villas for the time of the year they are not there.
For sophisticated investors, they could use this extra cash to invest in a range of financial instruments including bonds, shares, mutual funds and exchange traded funds to earn them a return each year. They can then use this money to rent during the year rather than face all the headaches of buying and selling property.
QROPS Pension Transfers for Higher Rate Tax Reduction. Tax Relief.
Higher rate tax reduction. What tax relief would I be allowed if I transfer my pension into a QROPS?
Tax relief on Contributions: No Isle of Man tax relief
Tax on Investment Return: No Isle of Man tax
Tax on Pension payments: No Isle of Man tax
Tax on Lump Sum payments: No Isle of Man tax
Tax on Death Benefits: No Isle of Man tax
What taxes would I pay after QROPS pension transfers?
Maximum higher rate tax reduction. You would not have to pay any taxes under Isle of Man or UK law, but you may still be subject to taxes in the country you reside, especially if you moved a lump sum to that country in order to receive an income. You would get maximum higher rate of tax deduction from the UK and would not pay any UK income tax. However, ATM withdrawals from offshore accounts can be used to take advantage of income tax allowances.
You need to check the tax laws in the country you reside as to your tax status. But, you would avoid UK tax and Isle of Man tax on your pension. You would get maximum higher rate tax deduction.
What is the maximum lump sum available?
Should you decide upon qrops pension transfers. If you are not UK-resident or recently resident, the maximum lump sum withdrawal is 100% of Fund Value (at retirement) less 70% of Transfer Value (at transfer-in), otherwise it is 25% of fund value. So, in the example above, you would be able to access the entire value of the increase in pension £948,717 plus 30% of the amount transferred in, which is £300,000.
What pension income would I receive on my QROPS pension transfers?
When you decide to draw benefits, pension income is distributed by drawdown, with the amount of pension income payable being flexible within reason.
• There is no minimum pension amount, either before or after age 75.
• The drawdown rate is dependent upon your age and assumed investment return.
• GAD limits do not apply (unless UK-resident/recently resident).
• Drawdown pension can vary from year to year.
• Reviews of drawdown amount are recommended every 3 years, based upon investment performance. The pension income paid out is not a fixed amount and may increase or decrease depending on fund performance at the review period. You would pay no UK income tax and would have maximum higher rate tax deduction.
As the 50c pension scheme we use satisfies all of the requirements of a Qualifying Non-UK Pension Scheme (SI 2010/51), assets held within the QROPS pension transfers are outside the scope of IHT by virtue of the s271A Inheritance Act 1984.
What investments are permitted?
You can hold your pension in cash, bonds, mutual funds, ETF’s, shares, stocks, money market funds or commercial property. So, you could use your pension to purchase hotels, shop houses or retail office space.
Will it be safer to leave my pension in the UK?
In the UK, if you have a decent final salary scheme, your pension is normally fixed to the rate of inflation. The government in the UK now use Consumer Price Index (CPI) rather than Retail Price Index (RPI) as a measure of inflation. The average rate of inflation from 1996 – 2010 was 2.0%. So, as an estimate your pension may grow at this rate over time.
If you are a low risk investor, we can move your funds into government treasuries and bonds which guarantee to pay your cash back plus pay a coupon each year on your money. For example, a 10 year treasury bond guarantees to pay the capital back, plus the yield is 3% – 4% per year. You could also just hold your money in a high interest rate bank deposit.
For sophisticated investors, you will know to spread you risk, holding a broad range of financial instruments including cash, bonds, shares, funds, precious metals, commodities and property to diversify your portfolio thus reducing risk.
I am a UK IFA. Can QROPS Specialists Help Us?
Yes. We provide generous commissions for introductions to clients who are moving offshore. We can work hand in hand with you to give your clients the best possible advice to protect their future income stream from taxes.
We can help you at firstname.lastname@example.org to organize your portfolio and help you with higher rate tax reduction.
QROPS Pension Transfers for Higher Rate Tax Reduction written by QROPS Specialists.QROPS Pension Transfers for Higher Rate Tax Reduction by Richard Malpass