Who doesn’t? But every year thousands of Brits leave the UK and continue to pay UK income tax needlessly on their pensions.
Since 2006, there has been no excuse for this. Qualifying Recognised Overseas Pension Schemes were introduced that year as part of the Pension Simplification initiative. Not only does it mean that the pension regulations were meant to become more straightforward, but the scheme was also meant to ensure that the tax consequences of moving abroad were fairer for British expats.
How do QROPS work?
The exact mechanisms of a QROPS will depend on their individual rules. Generally speaking, a QROPS is available to someone who is going to leave the country for at least 5 years for tax residence purposes. So if you plan to come back within that time, you may like to consider other tax planning opportunities.
The QROPS rules only apply to those schemes that are on the HMRC’s list, so you cannot simply pick any foreign scheme and relax in the knowledge that you will never pay UK tax on your pension ever again.
What other considerations are there?
A QROPS may offer other benefits too. For example, QROPS are exempt from UK inheritance tax, and depending on how efficiently you plan the transfer could also be structured so that no death duties are attracted in any country. Accordingly a QROPS could offer you the opportunity to transfer your assets in their entirety to your beneficiaries on your death.
There are other advantages too. If you consider that your QROPS can be located in a number of countries, you have the choice of several hundred pension schemes to choose from. QROPS may offer you more flexibility in how to manage your pension than you have been used to in your UK arrangements. If you want earlier access to lump sums, a wider choice about the underlying assets your scheme can hold, and an opportunity to build an overseas pension scheme around your individual needs, then a QROPS may be well worth a look.
