Transferring UK pensions to a QROPS can offer expatriates flexibility, tax, estate planning and currency benefits, but is it suitable for everyone? Wealth management consultants, Blevins Franks give Abode2 the expert lowdown
One of the many pension options available to British expatriates today is transferring to a Qualifying Recognised Overseas Pension Scheme (QROPS).
QROPS are foreign pension schemes recognised by HM Revenue & Customs (HMRC) to receive tax-free transfers from UK-registered pension funds. They were introduced in 2006 to help Britons who have permanently moved abroad simplify their affairs by taking their pension savings with them.
Despite being widely seen as the answer for expatriate retirees, QROPS are by no means a one-size-fits-all solution.
Currently, EU residents can transfer one or more UK pensions into a QROPS without taxation, while transfers outside the bloc attract the UK ‘overseas transfer charge’ of 25%. There are expectations the UK will extend this within the EU/EEA post Brexit, so time may be limited for tax-free transfers.
Once in a QROPS, funds are sheltered from UK taxes on income and gains. They also no longer count towards your lifetime pension allowance (LTA), so can grow unlimited without attracting LTA penalties of 25% or 55% when accessing your money.
While QROPS funds become taxable once you start taking benefits in your country of residence, many expatriates resident in Europe can receive favourable tax treatment.
QROPS funds only become taxable once you start taking benefits in your country of residence, but expatriates can usually receive favourable tax treatment.
While UK pensions can be restrictive, many QROPS allow you to take as much cash or income as you like, however and whenever you want. You could, for example, draw a higher income in early retirement when you are most active and reduce it in later years. Or you could take a lump sum and preserve the rest for a rainy day or for future generations.
However, with this freedom comes more potential to exhaust your funds – unlike a UK annuity or ‘final salary’ pension which provide a guaranteed income for life.
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