Benefits & Warnings – Transferring from a QROPS to a SIPP
There was an interesting article yesterday in the FT about transferring from a QROPS to a SIPP and the concerns some advisers were having about expat pensioners transferring from their QROPS, which is an offshore pension scheme, back to a SIPP in the UK as it offered more options.
SIPPs are actually more flexible than QROPS and allow a wider range of investments as well as many more property investments. Unfortunately, many of these SIPP-ready products have ended in disaster.
Banks are now being more relaxed with their lending criteria and you can leverage your pension up to 10 to 1 if you use your SIPP to buy property. So, some pensioners may be tempted to move their pensions from a QROPS back to a SIPP now the FCA have allowed commercial property to be included in SIPPs and banks are lending more easily again.
Key Differences Between a QROPS and a UK SIPP
- 30% tax free cash lump sum
- No UK income tax
- Flexible drawdown
- No UK tax on death
- Invest in any currencies
- Wide range of financial instruments such as stocks, bonds, share, mutual funds, ETFs
- 25% cash lump sum
- UK income tax of 20% – 45%
- Flexible drawdown
- Tax on death at highest marginal rate of tax on lump sum or on income
- Wide range of financial instruments and alternative products
FCA Warns on Unregulated SIPP Products
“Things like Ucis, unlisted shares, unconnected loans, non-stock exchange-listed bonds, as well as property syndicates that use things like fractional ownership, possibly some overseas investments as well [will be included].” – FSA’s CP12/33 paper on capital adequacy
For an expat who has moved offshore and moved his pension with him, a move to a QROPS seems a sound decision. Only sophisticated investors who are well aware of the risks should consider moving back to a UK SIPP to buy commercial property. I would be very wary of overseas unregulated property investments.
Unless you are returning to retire in the UK, it makes little sense to transfer from a QROPS to a SIPP. I am guessing people thinking of moving back are thinking of buying commercial property in the UK.
A SIPP can buy commercial property only up to 50% of the value of its assets. You also would have to put up a 30% deposit down. That’s not to mention the SIPP fees, legal costs, surveyor costs, real estate costs and upkeep costs. You also are in real danger of being in negative equity and putting your entire pension pot at risk if house prices dip.
For the expat who remains offshore, a QROPS still offers tax, currency and international portability benefits that a SIPP cannot.Transferring from a QROPS to a SIPP by Richard Malpass