Wednesday, 26 January 2011

What is QROPS?

Qualifying Recognized Overseas Pension Scheme

QROPS is a Qualifying Recognized Overseas Pension Scheme which took effect on April 6, 2006. The Inland Revenue agreed  to allow expats who have worked in the UK to transfer their pension schemes offshore to HMRC approved QROPS in order to legally take advantage of tax breaks due to the fact that these expats now reside offshore.

Who qualifies for a QROPS tranfer?

  • UK taxpayers who intend to move or have already moved outside the UK.

  • Anyone in this position who has been in the UK and contributed to a private pension scheme should be able to transfer. Most private pension schemes can transfer into a QROPS. SERPS, S2P (second state pension), FSAVC's, S32 buyout plans, occupational pension schemes, defined contribution (money purchase) and defined benefit (final salary) pension schemes may all be transferred.

  • Who cannot transfer into a QROPS?

    • UK state pensions cannot be transferred.
    • Pensions which have already purchased an annuity.
    • Certain occupational final salary pension schemes in drawdown (Please email to check if your pension qualifies).
    • Non-UK pension schemes.

    Do I need to transfer my QROPS to the country I live/retire in?

    No. You can hold your pension in a different country than where you retire to. This is often done for security and tax reasons. For example, you can transfer your pension to the Isle of Man or Guernsey for security reasons, whilst living and retiring in Thailand. This allows your pension to grow in a country with a low or zero tax regime. You can then have your retirement income paid directly to your bank account in the country you reside in or paid into an offshore account.

    Why would you move into a QROPS?

    As taxes increase in the UK, it makes sense to find a safe jurisdiction such as the Isle of Man or Guernsey to administer your pension in a tax efficient environment.

    Income tax in the UK varies from 20%-50%, capital gains tax is 18%-28%, dividends tax is up to 42.5% and inheritance tax is 40% above the threshold. 

    A QROPS transfer protects your pension from UK taxes whilst enabling you to invest in a much wider range of investment options and strategies. You can also hold your pension in many different currencies. It also allows you to invest in commodities such as gold, silver and oil.

    From an estate planning viewpoint, QROPS allows you to pass all of your pension pot onto your loved ones if anything happens to you. Under a traditional UK penion scheme, typically a spouse gets only half and then the kids get even less. You also do not have to purchase an annuity, which gives your pension a chance to grow.

    QROPS Advice

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    1 comment:

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