By: JANE DOODALL
Jane Goodall is the Director of International Pensions at Blevins Franks.
ARE YOU a British expatriate who has retired in Portugal? Would you like to make the most of your pension? For most of you, your pension provides the lion’s share of your income in retirement on which you will depend for income.
During your working life you or your employer will have contributed to your pension, to build up its value for exactly this moment – the time to relax and enjoy your retirement free from financial worries. For these reasons it is important to get the maximum possible out of your hard paid for pension.
UK pensions can be restrictive. There are regulations which prevent you from taking all of your pension money at a time that suits you. There are restrictions on when you take your benefits and usually you have to buy an annuity when you reach 75. The UK government set these restrictions to prevent people from squandering their pension pot and then having to rely on the State. Unfortunately this means that if you were to die before you were able to enjoy the full benefit of your pension, its value is lost, for you and for your heirs.
Now, much of that has changed for the British expatriate. There is an exciting new international pension scheme available that permits UK non-residents to transfer their pensions out of the UK and the advantages are indeed attractive. A Qualifying Recognised Overseas Pensions Scheme (QROPS) is accessible if you are planning to move abroad, or have already left the UK, and have notified HM Revenue & Customs (HMRC) that you are no longer a tax resident in the UK. You must then remain a UK non-resident for five consecutive UK tax years before being completely removed from UK rules and taxation on your pension.
You can transfer your pension into a QROPS as you leave the UK, or at any time after you have left the UK. If you have already been a UK tax non-resident for say, two years, you can transfer your pension into a QROPS, where it needs only to remain for three more years. If you have been UK tax non-resident for five years, you may transfer your pension into a QROPS and then immediately out again, free of UK tax. You may decide to place the funds into another retirement plan, or a structured portfolio, possibly under the umbrella of a trust, or take it all as cash.
The QROPS must comply with HMRC’s reporting requirements and the rules as to how and when benefits are taken during the qualifying five years, after which UK tax legislation no longer applies. However, money drawn from the pension fund in this way will be liable for tax in your new country of residence, so care must be taken at this stage as to how you take your benefits.
A properly constituted pension plan is treated very favourably from a tax perspective in Portugal. There is no tax to pay unless withdrawals are taken, and the pension can be structured so that minimal Portuguese taxes are paid. A tax specialist with expert knowledge of both the UK and Portuguese tax systems will be able to advise you on how you can legitimately mitigate the tax liability.
The key advantages of a QROPS are:
No annuity required
Annuities generally represent poor value and are inflexible. On your death your pension dies with you.
No UK inheritance tax
Pension rights transferred into a QROPS are shielded from UK inheritance tax. You can designate who you wish the beneficiaries of the fund monies to be – free of the restrictions of probate, often a very lengthy process.
Currency of choice
You can avoid exchange rate risk by selecting in which currency you wish to take your pension income. It can be taken in Sterling or Euros or indeed, in any other currency to suit your circumstances.
QROPS are very flexible as to how and when you take your income.
Most pensions qualify
Most types of UK pension schemes qualify – including protected rights – even if you are already taking an income from them. If you have changed employers during your working life you can pool all the different pensions you have accrued for transfer into a QROPS. However, unfortunately you cannot transfer if you have already purchased an annuity or begun to take benefits from a Final Salary Scheme. A UK state pension does not qualify either.
Blevins Franks will be discussing this topic at our upcoming seminar on the May 12 at the Meridien Dona Filipa in Vale de Lobo.