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Understanding QROPS

By BILL BLEVINS [email protected]

Bill Blevins is the Managing Director of Blevins Franks. He has specialised in expatriate investment and tax planning for over 35 years. He has written books and gives lectures on this subject in Southern Europe and the UK.

Qualifying Recognised Overseas Pension Schemes (QROPS) are  schemes located in a jurisdiction outside the UK and which HM Revenue & Customs (HMRC) has approved to receive transfers from UK registered pension funds.

They provide many benefits for British expatriate retirees.

Most UK private pension funds can be transferred provided you have not yet bought an annuity or, if it is a Final Salary Scheme, that you have not commenced taking your pension.  

QROPS have sparked much interest among the expatriate community and this article covers many of the questions we are regularly asked about this opportunity.

I have heard that you need to have lived outside the UK for five years before you receive benefits from QROPS – is this correct?

Yes and no. The QROPS provider will report to HM Revenue & Customs for the first five (consecutive) UK tax years of non-UK residency, and during this time a QROPS is largely treated in the same manner as a UK pension scheme. However, some benefits do start immediately, as covered in the questions below. You can set up your QROPS at any time, even if you have not yet been out of the UK for five years.

Will a QROPS improve my local tax position?

From outset, once in a QROPS, your pension will be paid to you gross (although you still need to declare it in your country of residence), and it will only become liable to tax when you take benefits. You can often set up your QROPS to significantly mitigate taxation on withdrawals. 

UK pension schemes suffer UK death taxes even if you are non-resident.  What happens with QROPS?

Once you have been non-UK resident for the five year period mentioned above, the UK charges on death no longer apply to assets in a QROPS – you escape them completely, whatever the rate is. The tax charge on Pension Fund Withdrawal is currently 35 per cent but under government proposals still at the consultation stage it may be increased to 55 per cent. Moving into QROPS could therefore provide a significant saving for your heirs. 

Are there any requirements to buy an annuity with QROPS?

QROPS are very flexible as to whether you buy an annuity or not, it is entirely up to you. 

I have been out of the UK for over five years already, so my QROPS will escape UK death charges if I die now, but what happens if I later return to the UK?

In theory, if you are UK resident at the time of your death, then the UK charges will apply again. However, with advance planning you may be able to take steps to continue to avoid these taxes – you would need to take specialist advice.

Does a QROPS work the same way as UK pensions – can I still choose whether and when to take a cash lump sum and income?

Yes, the options are the same (provided that you have not taken the maximum cash lump sum before you transfer into a QROPS).  Once you have completed the five full and consecutive tax years of non-UK residency you can potentially have access to a higher and more flexible income than you can under UK pension rules. 

So can I take as much capital out as I want to?

No, the pension must still be structured to be able to pay you an income for life. Since HMRC only gives a QROPS approval on the basis that a minimum of 70 per cent of the fund is to provide income for life, a QROPS should not allow people to take more than 30 per cent of their fund as cash. If you do there is the risk of having to pay a 55 per cent unauthorised payment charge to HMRC.

What investment options are there within a QROPS?

You can select from a range of flexible and diversified investment opportunities for your QROPS to suit your circumstances and objectives. Subject to the discretion of the trustees of the QROPS, you may hold a wider range of assets than those permissible under the UK rules.

Can I hold my QROPS in Euros?

You can choose to have the fund denominated in any currency you like, and receive the income in any currency. This is from the moment you set up the fund.  This is a major advantage for British people living in the Eurozone. Not only are you no longer at the mercy of exchange rate movements, but you also no longer have to pay currency conversion costs. You can also switch currency any time you like, subject to the terms and conditions of the underlying investment.

Are QROPS suitable for everyone?

No, everyone’s circumstances and objectives are different and you should take advice from a specialist such as Blevins Franks to establish if QROPS would be suitable for you and exactly what the benefits would be to you.

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