QROPS for expats. FAQ - Frequently asked questions

Updated: May 14, 2019

What is a QROPS?

A QROPS is a Qualifying Recognised Overseas Pension Scheme. For an overseas scheme to be deemed as such, it must satisfy criteria stipulated by HMRC. Such as being available to residents in that country and not being accessible before age 55, unless under special circumstances. It was devised for those who live overseas as an expatriate or those who are planning to leave the UK. It’s a scheme that makes it possible to transfer your existing pension plans in order for you to potentially benefit from increased investment growth, flexibility in access to your funds and financial security. The Finance Act 2004 made it possible from April 2006, for UK pensions to be transferred to any overseas pension scheme which is registered with HMRC as a QROPS. HMRC publishes a list of recognised QROPS online. they can be found here:

HMRC approved list here

What types of pension can be transferred to a QROPS?

A QROPS can accept any pension that has accumulated in the UK whether it’s a personal scheme or from an occupational scheme. They can be defined contribution schemes also known as money purchase arrangements, or final salary schemes/defined benefit. Alternatively, a person who is born outside the UK having built up benefits in a UK-registered pension scheme can move their pension offshore if they want to retire outside the UK.  The UK State Pension cannot be transferred to a QROPS. In additon it is no longer possible to transfer benenfits from an unfunded public sector scheme.

Transfers may only ever take place if the scheme is on HMRC’s approved list of QROPS. Transferring any UK registered pension to an overseas pension scheme that is not a qualifying scheme, will give rise to unauthorized payment charges of up to 55 per cent 

When would a QROPS be a reasonable choice to consider?

If the pension holder lives or plans to live in a jurisdiction with no Double Tax Treaty with the UKFor those approaching the age of 75, who wish to pass the whole fund upon their death, without taxYou are retiring in a jurisdiction where your pension would be taxed twiceIf the pension holder is planning to retire outside of the UK and there is an effective and DTA in placeMore control and flexibility than a DB scheme would afford themWhere the Lifetime Allowance may be breached, therefore the potential of saving a lifetime allowance tax charge of 25 or 55% Once the funds are invested in Qrops, the eventual retirement benefits would not be tested against the lifetime allowance (LTA) unlike those of UK registered pension schemes.

To receive a potentially larger tax free sum than their UK scheme would provideIf you retire outside of the UK and will be affected by fluctuating exchange ratesPortability, flexibility and consolidation of pension potsYou wish to retire abroad and retire earlier than the normal pension age attributed to your UK pensionYou are likely to retire abroad and your final salary scheme is underfunded or at risk of falling into the PPFYou have a personal reason or lifestyle reasons for wanting to move your money out of the United KingdomThe ability to pass on your remaining pension funds to your family, free of UK inheritance tax both pre and post age 75.HMRC may in the future close the door to pension transfers outside of the UK or raise taxes in the UK. Once you have transferred out of a QROPS, HMRC cannot (at present) retrospectively change the rules.

I may go back to the UK in the future, can I still benefit?

QROPS are generally used by those who are no longer living in the UK or are planning to retire abroad. However they may still be used by UK residents who have no intention of living abroad or who decide to return to the UK at some point. What is important however is where the QROPS is held and whether the country has a dual taxation agreement (DTA) with the UK. For example, if your QROPS is in Malta, the income would be paid to you gross; Malta has a DTA with the UK, and you would simply pay UK income tax on the money you drawdown and so in that respect it would operate very much like a UK SIPP (self invested persoanl pension).

At what age can I draw my pension from a QROPS?

The earliest you may withdraw funds from a QROPS is age 55

Is there a minimum amount required to transfer to a QROPS?

Transfer values will of course vary and different receiving schemes have different costs involved. There will usually be a trustee fee plus an ongoing adviser fee as well as admin costs. A QROPS will therefore only be worthwhile provided that a certain threshold is reached as otherwise the costs are likely to out-way the benefits.

What is the new 25% tax charged imposed on transfers?

From 9th March 2017, transfers to QROPS attract a 25% tax charge but there are exceptions. You will still be able to make a transfer tax free if you are transferring to a qualifying recognised overseas pension scheme (QROPS) and formally requested your transfer before 9 March 2017 or one of the following apply: 

You are resident in the country where the QROPS receiving your transfer is basedYou are resident in a country in the European Economic Area (EEA) and the QROPS you are transferring to is based in another EEA countryThe QROPS you are transferring to is an occupational pension scheme and you are an employee of a sponsoring employer under the schemeThe QROPS you are transferring to is an overseas public service scheme and you are employed by an employer that participates in that schemeThe QROPS you are transferring to is a pension scheme of an international organization and you are employed by that international organisation

Note however that If you are exempt from the charge on transfer but then your circumstances change within 5 years such as moving to another country or moving your QROPS to another country then you may have to pay the 25% tax charge at that point.

How is income from a QROPS taxed?

This will depend on where you are resident in retirement, where the QROPS is based and whether there are any double taxation treaties in place. It is therefore possible in some cases to pay less tax than you would pay if your pension remained in the UK. Previously, QROPS were only exposed to tax on 90% of pension income for UK residents. This has now been increased to 100%.

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  can receive favorable tax treatment depending on where they are based. The country-to-country tax relationship is governed by the rules of any tax agreements between the governments,  If they have DTTs, then the terms of the treaty detail how much, if any, income tax is paid on pension benefits.

What is the 10-year rule?

The previous 5-year period in which QROPS providers had to report benefit payments to HMRC has been extended to 10 years (after moving abroad). The reporting must cover all benefit payments. This means that any lump sums would be taxed the same way as the UK, limiting the tax-free lump sum from any QROPS to only 25% for the first ten years living abroad. People who withdraw in excess of £100,000 from overseas retirement schemes with QROPS status and return to the UK with less than 10 years non-UK residency period and have withdrawn more than £100,000 when overseas, will have all the withdrawals from QROPS pension funds assessed for UK income tax in the tax year of their return.

If I transfer to a QROPS from a UK scheme will my benefits be tested against the lifetime allowance?

A transfer from a UK tax relieved pension scheme to a QROPS will be treated as a benenfit crystalisation event, know as a BCE. A transfer to a QROPS is BCE 8. Therefore transfers of both crystallised and uncrystallised funds from UK pensions to QROPS are subject to a lifetime allowance (LTA) test upon transfer. The LTA charge is 25%. The scheme must carry out the LTA check and calculate any LTA charge before calculating any overseas transfer charge. Only once all taxes due have been paid may the funds be transferred.

Any information provided is for information purposes only and does not constitute actual advice. It is intended to provide general information only and does not attempt to give you advice that relates to your specific circumstances or requirements.

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