QROPS benefits explained in a short video
A QROPS allows you to transfer your pension offshore into the currency of your choice, the investments of your choice and it also avoids the UK tax net as long as you remain non-resident
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New QROPS Rules for 2015
• 30% of your pension pot can be taken as a cash lump sum at 55. This is higher than the 25% allowed in the UK
• 150% GAD rates are now allowed for pension drawdown, i.e. you can access a higher amount of your pension savings than before
• Higher pension income again can be taken in the Isle of Man which has more flexible limits and doesn’t depend on Government Actuary Department (GAD) rates for drawdown
• Malta QROPS allow you to take 50% of any increase in the value of your pension pot every three years
• Avoids tax on death – this is up to 45% post-75 years old in the UK
• Your QROPS grows tax-free
• Avoids UK income tax of between 20% and 45% that a UK pension scheme would charge
• Transfer your pension to the currency of your choice, e.g. USD, EUR or keep it in GBP
• Freedom to invest your pension monies as you see fit. You can purchase ETF’s, mutual funds, bond funds, gilts, bank notes or leave your pension in cash.
• 100% of your pension pot is passed on to your partner upon death or you can leave it to your named beneficiaries or charity.
• Your QROPS pension pot is then paid into your local bank in the country you live in or into an offshore bank account of your choosing
1 in 10 Brits now live abroad and more people are moving their pension into a QROPS to avoid UK taxes and avoid currency fluctuations on their pension. A QROPS also allows you to invest in the mutual funds, ETF’s, shares, gilt funds, bond funds, property funds or you can simply sit your pension in cash. You can also get access to higher cash lump sums upon transfer as well as the possibility of receiving a higher pension income later on.
A QROPS can be useful not only as a tax planning tool, but also to help you avoid currency fluctuations. British expats in Europe have lost 22% of their income due to a weaker Pound against the EUR and lost 36% of their income against the Baht if they have moved to Thailand. A QROPS can help to move your pension into the currency of your residence if you wish or you can continue to hold it in Sterling.
You can see the article here.
What exactly is QROPS?
A QROPS is also a useful tool for any British expats or anyone who has worked in the UK and now has returned to live abroad. Many Europeans, Asians, Indians, Americans, Australians and Arabs have worked in the UK and returned back to their home countries with their pension stuck in the UK under the UK tax system.
We can help clients move their pensions offshore where they can choose the investments they want, the currency they would like their pension to be paid in and the bank they want their pension paid into
There are many Indians, Asians, Africans, Australians and Americans who have worked in the UK who have built up substantial pensions and may want to move their pensions to where they live now.
UK income tax is now between 20% and 45%, capital gains tax is as high as 28%, dividends tax up to 42.5% and inheritance tax in the UK is 40%. We can help you mitigate these taxes on your existing pensions, bank accounts, properties and other assets if you are intending to retire outside the UK.
If you hold a private pension in the UK and draw benefits at retirement, your pension could be subject to a 45% tax after death. You may also be paying UK income taxes on your pension whilst living abroad.
“A QROPS allows you to transfer your pension offshore into the currency of your choice, the investments of your choice and it also avoids the UK tax net as long as you remain non-resident”.
The top destinations for British expats living abroad are Australia, Spain, United States, Canada, Ireland, New Zealand, South Africa and France.
As British expats are increasingly working and retiring abroad, what options are available to reduce your tax bill on your pension? There are a number of ways to limit your liability to tax.
QNUPS are structured for both UK residents and British expats to limit their tax liability. QNUPS are primarily used for those with large pensions who exceed HMRC’s limit of 55,000 GBP contributions each year. Any amount above this could be placed into a QNUPS to avoid UK taxation and in particular to avoid UK inheritance tax.
A QNUPS may be helpful for British expats offshore who have a large amount of pensions and assets in excess of the IHT threshold (325,000 GBP per spouse) as British expats are subject to a 40% tax upon death on their worldwide assets (including cash in bank accounts and property).
So, QROPS are used for transferring any existing UK private pensions you hold (please note that state pensions in the UK cannot be transferred),whilst QNUPS are largely used for money which doesn’t come under a UK pension scheme umbrella.
SIPPs are Self Invested Personal Pensions which are held in the UK and are taxable in the UK, but increase your investment options.
If you are in the UK and considering retiring abroad, if you are a British expat or if you are a foreign national who has worked in the UK and has built up a substantial pension in the UK, a QROPS pension transfer is an option you should look into to protect you from UK taxation and for family protection reasons.
In the UK, if you have a final salary, often the spouse receives around half that salary as an income stream upon death. Similarly, under a money purchase or private personal pension, your husband or wife receives around half upon death.
“One of the big benefits of a QROPS is that the entire pension pot gets passed on as a cash lump sum to your loved ones upon death”.
So, for someone who has been paying into a pension for twenty years and who had built up a pension scheme which is set to pay him a 20,000 GBP income at retirement, what would happen under a QROPS as a non-resident (someone who retires offshore)?
Firstly, he would pay no UK income tax on this amount. Secondly, if he died, his wife would receive the entire pension pot upon death as a lump sum. This would be around 400,000 GBP rather than an income stream of around 10,000 GBP per year under UK pension rules.
This is significant as it may be the difference between paying off a mortgage or paying off a large inheritance tax bill upon death meaning your wife or heirs can keep your house and the wife would have enough money to cover funeral arrangements. A QROPS would also leave your wife enough money to put a down payment on a house or condo if necessary or purchase a property for rental income or investment. Alternatively, she could use the money to start her own business.
This is not to advocate a transfer out of a final salary scheme into a QROPS. Some UK final salary schemes provide a high level of protection as well as guarantees on the pension income received. You would first need to ask us for a pension transfer analysis.
A QROPS is a much more flexible scheme than a final salary scheme with flexible drawdown, for example you can take a larger lump sum pot and a larger pension income. You can also decide which currency you want your pension pot to be denominated in and where to invest your pension monies
QROPS Frequently Asked Questions
What are the most important issues that affect QROPS and QNUPS?
Regulations are one of the most important issues. You must consult a QROPS specialist who understands the rules of the QROPS jurisdiction where you are thinking of moving your pension to, as well as understanding the rules of the country you live in or want to retire to. They need to understand your individual situation as well as assess your attitude to risk and help you get the flexibility you require from your pension.
For example, certain QROPS schemes allow you higher access to your pension. Some QROPS allow a higher pension income to be paid and some allow higher cash lump sums to be paid out. Please contact us for a free pension transfer analysis.
A QNUPS is a different vehicle altogether. It is open to UK residents as well as British expats. Whereas a QROPS is suitable for your existing pension, a QNUPS is slightly different. It allows more flexibility that a QROPS. This is particularly beneficial for bankers and higher rate income earners who now have their pension contributions capped at £55,000 in the UK. Someone in this position who already has a UK pension scheme, could considering funneling the remainder into a QNUPS.
A QNUPS allows you to invest in residential property to avoid capital gains tax. However, if this is seen as an IHT dodge by HMRC as a UK resident, you could face a tax claw-back. But, if you rent out the property and prove it was for investment purposes only, that should keep HMRC off your back. This is important for people who have more than one property in the UK, as any additional properties will be subject to capital gains tax in the UK. A QNUPS could save you thousands of pounds. There are many options to consider though other than QNUPS. Please contact us to consider the best options.
What top tips would you suggest to people who are considering a move to a QROPS?
Firstly, you need to establish what type of pension do you have? Is it a private pension, a company pension, a stakeholder pension or have you bought an annuity for example. Anybody who has bought an annuity does not qualify for a QROPS pension transfer. A state pension cannot be transferred into a QROPS either.
Secondly, you need to write to your pension company and ask them for your transfer value. A QROPS Specialist can draft the letter for you. Your pension company will also send the discharge papers out should you wish to transfer into a QROPS. Once you have your transfer value and pension statement, you will be able to see the benefits of your current pension and the projected income it will pay you at retirement. A QROPS specialist can then help you assess whether you are better off transferring your pension or leaving it where it is.
You need to decide how much of a lump sum you wish to take upon transfer at 55 or if you want to take a lump sum later on. You do not have to take a lump sum upon transfer and this can be taken at a later date. Most QROPS allow a 30% cash lump sum to be paid out once you have been abroad for 5 years. Others jurisdictions differ. The Isle of Man, New Zealand and Malta allow the greatest income to be taken from a QROPS. Please email us for more details.
If you don’t need the money and are an inexperienced investor, you may consider delaying the lump sum payment. Compound interest means that you will get a lot more out of it. Let’s take an example. Let’s say you reach 55 and have a pension pot of £100,000. If you take the £30,000 upon transfer, you have £70,000 in your pension. Let’s assume your pension grows at 5% per year after charges. Let’s assume you decide to draw yearly pension income of 6% at 65. You would have a pension of £6,841 per year. Now, let’s assume you don’t take the lump sum. You can still take a pension of £6,841 per year, but you would now have a lump sum of £48,866. If you wait 15 years, you would have a £62,367 lump sum. You could also opt for a higher pension income and a lower lump sum. So, the choice is yours, not the Inland Revenue’s.
The best advice is to seek out a QROPS specialist who has looked into the various QROPS trustees, their fees, the jurisdictions and making sure the right QROPS fits your situation. Also, if you are thinking of moving abroad, contact a QROPS specialist as soon as possible.
We can provide a free pension transfer analysis.
Do you think the number of QROPS transfers will grow as the workplace becomes more flexible and people work abroad more?
No doubt. The number of people working abroad is increasing every year, whilst job security is diminishing. People want flexible pension schemes which they can take with them and is outside the UK tax net. The BBC estimated in 2005 that over 5.5m Brits live permanently abroad and the number is increasing.
What are the countries to which your clients are moving or retiring, and what are the most popular QROPS destinations for UK pension transfers?
The HMRC figures for 2011 showed that of the total number of pension transfers out of the UK into QROPS between 1 January 2011 and 30th June 2011, 32% went into QROPS based in Guernsey. New Zealand was the 2nd most popular destination at 28%, Australia was 3rd on 20% and then the Isle of Man at 5%, followed by Hong Kong and Malta both on less than 1%, with the remainder in other jurisdictions.
However, following changes to QROPS in April 2012 when some QROPS loopholes were closed, Isle of Man has now become the most popular destination, even though it has an income tax of 20%. This is closely followed by Malta and Gibraltar in third. New Zealand takes fourth place.
QROPS pension transfers help British expats and foreign nationals who have worked in the UK avoid UK taxes on their existing pensions and increase investment freedom. Typically transfers are made to a low cost jurisdiction offshore which is outside of the UK tax net, such as New Zealand, Malta, Gibraltar or the Isle of Man.
QROPS for Larger UK Pension Pots Above 100,000 GBP
What are the benefits of transferring your pension into a QROPS and what are the costs involved?
Benefits of a QROPS
(1) Freedom of investment. You can invest in mutual funds, shares, exchange traded funds (ETF’s),bonds, gilts, bank deposits, inflation-protected securities, 100% capital-guaranteed bank notes or cash.
This investment freedom means that if you are a young guy who is transferring your pension and are prepared to expose your pension to higher volatility in exchange for the chance of higher returns in the long run, you can.
If you are an older client nearing retirement or a risk-averse investor, you can invest in bank deposits, government bonds or capital-guaranteed products to protect your pension. Most clients opt for a mix of both depending on their risk profile, health and age.
(2) Tax Efficiency. A QROPS pension transfer enables you to move your pension to a jurisdiction which is tax efficient. If you are a British expat moving abroad, you can move your pension to a jurisdiction such as New Zealand, Malta or Gibraltar, which are outside the UK tax net, but operate within their own strict financial regulatory systems.
When it comes time to draw your pension, it is often paid gross, free from any UK taxes. Although in Malta, this would depend on the individual Double Taxation Agreements between Malta and the country you reside in. Income tax on your pension would depend on the individual income tax rates in the country you reside in and the particular tax agreements it has with the QROPS jurisdiction.
Please click on the links to the various jurisdictions to find out more about the tax arrangements or send your pension statement to QROPS Specialists for a free pension transfer analysis.
One of the most important feature of a QROPS is that as long as your remain outside the UK, it avoids any tax upon death and the entire pension pot is paid out as a cash lump sum to any beneficiary of your choosing.
You can choose the percentages to be paid out, so that you may want 50% to go to your spouse and 25% each to your two children, for example or you may want a proportion to be paid to your parents or other dependents.
Read here for more on Tax on a QROPS if you return to the UK.
If you have a personal pension and leave your pension in the UK, lump sums paid out after age 75 or after draw-down could be taxed at 45%. This means your heirs will have less than half you pension passed on to them. If you have a company pension, a similar situation occurs. Usually, your spouse will receive around only half of your pension income.
Under a QROPS, your spouse or named beneficiaries receive the full lump sum of your pension pot tax-free. This could be particularly important if you have built up any debts or mortgages which need to be paid off.
A QROPS pension transfer allows your pension to avoid these taxes and passes the entire pot on to your nearest and dearest. You can even choose the beneficiaries. This is particularly important for larger pension pots. A QROPS helps to move your pension out of the UK tax system as well as protects you from any future increases in UK taxes.
An ageing population coupled with advancements in medicine has led to a strain on the UK pension system, which could well lead to future tax increases. In fact, some have already been written into the budget for future UK budgets. The government is considering scrapping or reducing tax allowances on personal income for expats in the last budget in 2014. A QROPS protects you from these future increases.
If you are a higher rate tax payer, you can pay up to 45% income tax on your pension. Furthermore, the personal allowance has been scheduled to reduce to zero over the next couple of years for higher tax payers, meaning your entire income will be taxed. Even standard rate tax payers will face 20% income tax on their pension above their personal allowance. A QROPS pension transfer avoids these taxes.
(3) Currency choice. Transfer to GBP, EUR, USD or ask us about other currency options.
A QROPS pension transfer allows you to choose the currency your pension pot is denominated in. If you live in Spain, for example, have a pension paid out in Pounds and the exchange rate drops off, you may suddenly find that your rent, petrol, food and drink bills rise sharply. A transfer into a pension held in Euros will help protect your pension from currency fluctuations.
Similarly, if you live in the USA or live in a country which uses US Dollars (such as some Caribbean or Latin American countries) or live in a country with a currency which is pegged to the US Dollar or live in a country whose currency closely tracks US Dollar movements, it makes sense to hold your pension in US Dollars.
(4) You can hold commercial property in a QROPS.
For those with larger pensions, you can diversify your portfolio and invest in commercial property such as B&B’s, hotels and shop houses. That means no capital gains tax to pay on the properties. CGT in the UK can be up to 28%. We have been advised that no stamp duty is payable on the transaction unless the property is mortgaged and in which case stamp duty is payable on the value of the debt. This is particularly important in the light of new regulations which place 15% Stamp duty on any housing owned by corporations.
When the property has been transferred all of the rental income less any allowable expenses would be taxed at 20% when held by an offshore company.
However, no residential property is allowed in a QROPS.
Risks of investing in a QROPS
(1) Investment risk. In the UK, your pension, especially if it is a final salary scheme is often linked to inflation. This offers your pension a degree of protection, as your pension will increase in line with the increase of the price of goods and services in the UK.
Unfortunately, the government has now revised their calculations of inflation in regard to pensions to track the consumer price index (CPI) rather than the retail price index (RPI). This means that your pension will now increase at a lower rate. The average CPI for 1986-2010 was just under 2%. You can see current CPI and historical data here. This is not an indicator of future inflation, but can act as a guide.
This compares to a QROPS which allows you access to bank deposits or 100% capital-guaranteed products which may or may not fair better, but will also be outside the UK tax net and offer protection for your family.
You can also just sit your pension in cash or inflation-protected bonds if you want a low risk pension. If you want to take more risk with your QROPS and invest in equities, your portfolio will be subject to market conditions.
(2) QROPS are set up for British expats who either want to retire abroad or are living abroad already. If you are going overseas for a few years to work and then return back to the UK to live permanently, a QROPS is not an appropriate vehicle for you.
In which case, a Self Invested Personal Pension (SIPP) could be a better alternative or you may want to leave your pension with your current provider. However, if you decide to live and retire offshore moving your pension to a QROPS, then after 5 years you have a change of heart and return to the UK, your QROPS can be moved into a UK SIPP whilst you would receive time apportionment relief on your pension as well to reduce taxation.
(3) Each jurisdiction differs. In some cases, your pension may be better off in the UK due to the tax regulations in the country you are moving to. The advantages and disadvantages will depend on your personal situation and the country you are moving to as well as the jurisdiction that you are looking to move your QROPS into. You must seek out QROPS Specialists to help you find the best solution to suit your needs. They can let you know about the Double Taxation Agreements between the country you reside and the QROPS jurisdiction.
QROPS for Smaller UK Pension Pots Below 100,000 GBP
(4) Smaller pensions may be better off under a SIPP or under your current UK provider. If your pension pot has a transfer value which is under about £100k, you may be better off looking into a Self Invested Personal Pension (SIPP). Pension pots under £30k could be better off cashing them in (see below),although it would depend on your age. A range of cheaper New Zealand QROPS have just been launched to entice smaller pensions looking to transfer outside the UK tax net. Please email us for options and for a free pension transfer analysis.
QROPS for Smaller UK Pension Pots Below 30,000 GBP
If you are 60 years old and have a smaller pension, you can cash it in. This option is only possible where the total of all your pension rights does not exceed 1% of the Lifetime Allowance. From the 6th April, 2014, if you have a pension which is smaller or equal to £30,000, you can cash it in at 60. This is known as trivial commutation. This is allowable for three pension pots of £10,000.
(5) Regulations. Some countries with lower tax rates than the UK also offer less investor protection in terms of regulation of financial services and they may not offer any statutory compensation scheme. That is why it is important to contact a QROPS specialist in order to obtain the best advice for your individual situation. Many QROPS jurisdictions have excellent investor protection such as Malta, Gibraltar and New Zealand.
The costs of QROPS have come down since their original launch in 2006. Some of the original QROPS fees were above £2,500 set up fee and £2,500 per year. Now the average is around £1000 per year. There are some cheaper QROPS, but you may end up paying more in charges through the funds they utilize or they may limit your investment options. A QROPS specialist would be able to find you the lowest fees and find the appropriate vehicle.
A QROPS in New Zealand is the cheapest option, but has a limited fund range (around 5 strategies) and often a NZ based discretionary manager is used. No tax is deducted in UK or NZ. NZ allows you to take 100% of any increase in your pension pot after transfer.
A QROPS in Malta is used if the country you wish to retire to has a Double Taxation Agreement with Malta allowing your pension to be paid out gross in Malta with no tax deducted. There are over 65 countries with DTA’s with Malta. The investment options are vast. Malta allows you to take 50% of any increase in your pension pot every 3 years.
A QROPS in Gibraltar is used when the country you live in does not have an agreement with Malta. A flat 2.5% income tax is taken at source in Gibraltar. The investment options are vast.
A QROPS in the Isle of Man is used for those who want the highest yearly pension income available. If you are in poor health or have a large pension and want a higher income, the Isle of Man is an option. You can get an income which could be 40% high or more than under a QROPS in Malta. However, you would pay a 20% tax on your income unless you lived in one of the few countries which has a Double Taxation Agreement with the Isle of Man.
The top destinations for Brits abroad in 2005 were Australia 1,300,000, Spain 761,000, United States 678,000, Canada 603,000, Ireland 291,000, New Zealand 215,000, South Africa 212,000, and France 200,000.
For more information on QROPS and to receive your free pension transfer analysis and suitability report, please send an email to: