Qualifying Recognised Overseas Pension Schemes (QROPS) (updated 18 August 2008)
What
is a QROPS
Her Majesty's Revenue and Customs (HMRC) permit UK pension rights to be transferred to a QROPS. The QROPS must behave in effect as if it were a UK scheme for those QROPS members who have been resident in the UK at any time in the previous five tax years. You may download a copy of our frequently asked qustions about QROPS.
Why transfer UK pension rights to a QROPS?
The key attraction of transferring UK pension rights to a QROPS lies in the fact that for those who are currently in the position of having been non UK resident for at least five tax years (or when they satisfy that condition) this requirement falls away.
After that time the pension fund becomes subject to the laws of the relevant overseas jurisdiction – and for example the UK requirement to purchase an annuity by age 75 (or be faced with the prospect of a possible 82% tax charge) no longer applies.
The key benefit of a QROPS
Since the Finance Act 2008 the argument for transferring UK pension rights to a QROPS for the expat has become even more compelling. A new clause has been inserted into the Inheritance Tax Act 1984 which gives QROPS freedom from UK IHT based on our understanding of this new legislation.
This means that not only is there no requirement to buy an annuity within a QROPS because of tax reasons, but that the remaining fund following death should be available to beneficiaries without any deduction of United Kingdom tax.
Transferring UK pension rights to a QROPS
A QROPs may be used to receive transfer values from any UK registered pension scheme including protected rights funds.
Transfer values may be taken into a QROPS from UK arrangements (other than annuities and occupational pensions) even where benefits have been taken.
For example if you have an existing UK self-invested personal pension scheme and even where unsecured income is being drawn (generally referred to as “drawdown”) it may be beneficial to transfer to a QROPS where you are non-UK resident and intend to remain so over the long-term.
Taking advice
The transfer of pension rights from any UK registered pension scheme is not a matter to be taken lightly.
Where the transfer is from a UK occupational pension scheme any UK-based adviser advising on such a transfer must be suitably qualified and have the relevant permission granted by the Financial Services Authority. Premier Financial Solutions have this permission.
Contact us for more information.
Click here to download QROPS the basics
Click here to download QROPS Frequently asked questions.
Costs
The costs typically associated with establishing and maintaining a QROPS will be :
A formation fee which depending on the fund that is most suitable for you could be as little as £500. However schemes which give the most investment flexibility carry higher formation fees which can vary from £1,000 at the bottom end and to no more than £7,500 except in the largest and most complex cases.
An annual management fee which depending on the fund that is most suitable for you could be as little as £500. However schemes which give the most investment flexibility carry higher annual fees which can vary from £1,750 at the bottom end and to no more than £7,500 except in the largest and most complex cases.
Additional advisory fees are also payable negotiated on a case-by-case basis based on the size of the fund, any potential complexities associated with the transaction, the source of the transfer value, and the need for ongoing advice associated with the operation of the scheme.
Click here for more information.
| What QROPS are available - and a health warning. |
We have looked carefully at a number of QROPS options including those based in New Zealand, Isle of Man, Hong Kong, and Guernsey.
It is Guernsey as a jurisdiction that we believe best suits many people’s requirements. Howver a New Zealand QROPS may be of particular relevance to those who are under age 50 and with substantial pension fund values. We are currently (August 2008),
anticipating the launch of schemes in each of Gibraltar and Luxembourg which will have different features too many of those currently available.
Until early May 2008 there were a number of QROPS in Singapore, the most well-known of which was a scheme marketed by Panthera. They were particular aspects of this scheme that we were unhappy about, and so never recommend it. This approach was borne out by the fact that in early May 2008 all Singapore QROPS arrangements lost their QROPS status.
Although this position is being appealed, it does strike a warning that professional and competent advice is essential before considering a transfer to a QROPS. those who try and "go alone" without the benefit of competent advice risk coming a cropper.
Contact us for more information and advice.
Click here to download QROPS Frequently asked questions.
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| Investing the funds transferred to a QROPS |
A wide range of investments are possible within a QROPS - and the possibilities become more or less unlimited once the QROPS member has been non resident for five complete tax years or more.
There is no limit to the size of funds that may be accumulated within a QROPS.
Transfer values from most UK registered pension schemes will be paid to the QROPS in cash. In other instances it may be possible to transfer existing scheme assets, but the additional costs associated with this would need to be taken account of.
On receipt, cash funds will be placed on deposit by the scheme administrators in an account designated for the member’s fund with a leading institution with a competitive rate of interest being applied. |
Contact us for more information.
Click here to download QROPS Frequently asked questions.
| Taking benefits - retirement age. |
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There is generally considerable flexibility in terms of the timing of taking benefits from a QROPS.
In most instances benefit can be taken at any time between the ages of 50 and 75, but it can be possible to access funds before or after these ages.
Contact us for more information.
Click here to download QROPS Frequently asked questions.
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| Retirement and death benefits |
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What follows is based upon the assumption that the QROPS member on taking benefit is not UK resident nor has been resident during the five tax years preceding the tax year in which benefit is taken.
Benefits may be taken from a QROPS in pension form with no particular limits on the amount of pension that may be taken. There is no obligation to buy an annuity from a life office and the amount of “income” required may be drawn from the fund.
In whatever form benefits are drawn from QROPS that we recommend, there will be no deduction of taxation at source. Taxation will apply in accordance with the legislation governing the QROPS scheme members’ country of residence.
Following the death of a QROPS member any remaining fund may be subject to the discretionary disposal of the scheme trustees in accordance with the provisions of the scheme rules. This will generally result in a disposal in lump sum form to beneficiaries nominated by the scheme member.
Legislation contained in the Finance Act 2008 corrects an error in the original legislation passed in 2004. The effect of this change we believe is to give freedom from IHT on death after transferring a UK pension fund to a QROPS and whether death occurs before or after the age of 75
However note that if you have transferred UK pension rights into a QROPS then in the event of death, where you have been a UK resident within the five full UK tax years preceding the date of your death, benefits paid will be subject to UK restrictions and UK taxation requirements. |
Contact us for more information
Click here to read HMRC guidance on QROPS
Click here to download QROPS the basics
Click here to download QROPS Frequently asked questions.
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