What are the attractions of a QROPS? Qualifying Recognised Overseas Pension Schemes were initially hailed as a tax mitigation exercise. In 2006, when they were first introduced, QROPS were welcomes by expats or those who were hoping to become expats because they provided a way to get your pension assets out of the United Kingdom without paying any UK income tax.
QROPS investors may transfer their pension assets to foreign pensions that have been approved by HMRC for the purpose. They will not face a bill from the taxman unless they return to the United Kingdom within 5 years of the pension transfer. They will, however, fall into the tax regimes of the countries where they live and invest. If they have chosen low tax destinations, this will not be a hardship.
There are of course terms and conditions to abide by. Aside from the 5 year rule, you must only choose a pension scheme that HMRC has individually approved. But if you are concerned about whether that requirement may limit your choice, it may be a comfort to know that there are over one thousand such schemes to choose from.
The tax advantages are not the only thing that draws thousands of members of UK pension schemes per year into foreign ones. Investors may also find that QROPS are more flexible than UK schemes, perhaps allowing larger lump sums to be withdrawn or a wider range of underlying assets to be chosen.
There may also be an advantage from an inheritance tax point of view, as some QROPS may offer structures which mean that an investor’s estate’s potential IHT bill can be next to nothing.
Finally, whilst this may not be the only reason why you consider a QROPS, expat investors who have been used to drawing their pensions in sterling may find that they are able to get a QROPS in the currency that they spend. Accordingly, there would be no exchange fees, and no more uncertainty about exchange rates.
