QROPS GUIDE for expats who wish to retire abroad

QROPS (Qualifying Recognised Overseas Pension Scheme) is a scheme in which you can transfer most types of UK pension offshore (e.g. Guernsey) in order to avoid buying an annuity and become tax efficient. It is designed for expats who live abroad and do not intend to return to live in the UK.

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QROPS guide. Pension transfers from UK to Thailand.

The benefits:

Investment freedom

A wide range of investment opportunities are available within a QROPS (mutual funds, bonds, shares, cash, property, exchange traded funds) which allow more freedom of choice in investment to capitalize on opportunities in the market.

Currency control

The volatility in exchange rates over the last year have highlighted the importance of holding assets in different currencies. QROPS can hold a mix of Pounds Sterling, U.S. Dollars or Euros.

No need to buy an annuity

Most retirees on retirement will take a tax free lump sum (25%) with the remainder being used to purchase an annuity. To make matters worse, on your death your widow will receive a reduced pension (typically half as income) and on her demise you cannot leave it for your heirs. If you transfer into a QROPS you will not have to buy an annuity (unless you want to) and the balance will be distributed to your heirs appropriately without the need for probate. These benefits apply immediately even if you have been out of the UK for less than five years.

Tax savings for your heirs

Pension rights transferred into a QROPS escape UK inheritance tax. Inheritance tax at the nil rate band is £325,000 for the 2010/2011 tax year. Above that, inheritance is taxed at 40%. There is an extra £55,000 allowance if your wife is not domiciled in the UK.

Tax efficiency for you

After 5 years, you will no longer need to report to the HMRC. Implementing the correct strategy with the help of a financial advisor can mitigate income tax, capital gains tax, dividends tax and inheritance tax.

What about a 100% lump sum?

Contrary to what many advisors may suggest, QROPS do not allow people to take more than 25% of their fund as cash. If you were to take more than this, HMRC could impose a 55% penalty, even if you had been a non-UK resident for more than five years.

What if I have already been a non-UK resident for more than 5 years?

After you have been a non-UK tax resident for five complete tax years, all reporting requirements to HMRC cease (as long as you remain a non-UK resident). You can transfer your pension into a QROPS at any time but we only recommend that you do so if you are, or plan to be, a permanent non-UK resident.

Is a QROPS beneficial for everyone?

Not always. Final salary schemes in the UK offer guaranteed income as well as built-in annual increases linked to inflation or a statutory amount. A suitability report would need to be prepared to make a reasoned analysis. Smaller pensions are better off in the UK as there are certain minimum charges incurred upon transfer to QROPS. In this case, a transfer into a SIPP may be a better choice.

Can I move an annuity into a QROPS?

No. An annuity is a structured investment that you buy with a pension that pays you a set income each year. If you have purchased an annuity in the UK already, there would be no advantage of moving into a QROPS and it wouldn’t be possible anyway.

Who provides QROPS?

There are many providers of QROPS. All QROPS providers must be approved by HMRC in the UK. Theses schemes will have varying charges and structures, so it is important for you to consult an independent financial advisor who can write a suitability report for you to determine whether a QROPS is right for you.

Do I have to move my pension into the same country I plan to move to or retire to?

No. This is the biggest misconception about QROPS. You can live in a country like Thailand or Spain, but hold your QROPS in a tax efficient jurisdiction like the Isle of Man or Guernsey, out of the reaches of HMRC. You can then leave it there to earn tax-free growth. When it is time to draw a pension, you can either open an offshore bank and use an ATM card to receive your money or have the monies paid into a bank where you now live.

Summary

In brief some of the advantages of QROPS are:

• No requirement to purchase an insurance company annuity
• Discretion over distribution of residual fund upon death of member
• Greater flexibility on drawing benefits
• Income paid gross and not subject to Guernsey income tax (unless a Guernsey resident tax payer)
• No limit on contribution or fund size
• Assets held within a QROPS grow free of taxation
• No hidden penalties or charges
• Outside the influence of the EU

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SIPP GUIDE for expats who wish to retire in the UK or abroad

For expats who intend to retire or return to the UK, a better option for you would be to move into a SIPP (Self Invested Pension Plan). This gives you some of the tax advantages of a QROPS, but is still held in the UK and is under UK pension jurisdiction. If you are unsure of where you want to retire, this is the option for you.

Benefits of a SIPP include:

• Freedom of choice of investment
• Zero capital gains tax and income tax
• Protected rights can now be transferred (S2P & SERPS)
• Tax free lump sum of 25% available
• No need to purchase an annuity
• Tax free pension, lump sum or reduced pension if ill

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