QROPS Advice for expats around the globe
Finding the best QROPS can be confusing, laborious and time consuming. There are hundreds of schemes, in tens of jurisdictions with thousands of so called QROPS advisers or IFA's giving advice.
This is why we recommend speaking with the leading QROPS advisory firm QROPS.net
QROPS.net do not run any QROPS schemes, they have unique terms of business with every scheme around the world, thus offering you the clients the best solution for transferring your UK pension in to a QROPS.
Their customer service is second to non, and being the global leaders, you are assured to get the best advice, lowest fees and fastest turn around.
The benefit of any UK pension or savings scheme, like an ISA, is generally based around benefiting from tax relief on the money invested or interest paid.
That’s great if you live in the UK, but as soon as you become an expat, you lose these tax relief entitlements because you are not resident in the UK, so you end up stashing your cash in funds paying miserly returns.
Of course, as an expat, lots of other investment doors open and one of the best to consider is an offshore pension.
These schemes are often called QROPS – jargon that stands for qualifying recognised overseas pension scheme.
HM Revenue and Customs will allow expats to transfer their pension pots from UK providers to an offshore scheme, providing it is a QROPS. This means the scheme has to meet HMRC criteria for benefits paid to the investor and also regulated in the country where the pension is established.
If someone tries to sell you a duff scheme, if you are transferring money in from the UK, the fund manager won’t be allowed to send the cash offshore unless the scheme is on the QROPS register maintained by HMRC.
If you are starting a new scheme without a transfer from the UK then you can check if the scheme is a QROPS on the HMRC web site.
Once you have confirmed the QROPS is a bona fide scheme and HMRC allows your pension fund transfer, a dawn breaks on a whole new world of investment opportunity.
Comparing UK and QROPS schemes
The main differences between a UK pension and a QROPS are:
- The rule that a pension investor has to buy an annuity with their pension pot by the age of 75 years old is removed. This means an investor has potential to invest the pension fund more effectively for a greater return
- No annuity means the pension fund remains as part of the investor’s estate at their death and can be passed on to beneficiaries via a will, whereas an annuity dies with the investor
- Effective tax planning should minimise the effects of inheritance tax on the pension fund. This depends on where the pension is established and where the investor lives and is an area where specialist estate planning advice should be sought.
- QROPS investment rules are laxer than those of a UK pension, so potential to self administer the scheme, invest in foreign currencies and property are available
- After a five-year holding period, the pension provider has no obligation to report to HMRC on cash withdrawals from the fund. A common misconception is some investors believe they can draw down the whole fund as cash after five years.
QROPS rules say at least 70% of the fund must be used to pay a pension in retirement. The only jurisdiction paying a 30% QROPS cash lump sum is the Isle of Man. Every other jurisdiction pays 25%.
- Until April 5, 2010, a QROPS can pay out from when the investor turns 50. From April 6, 2010, that age limit is raised to 55.
- The expat can live in one country and take out a QROPS in another, so having a pension based in the Isle of Man to take advantage of the 30% lump sum withdrawal while living in Spain is allowed under the rules.
What happens if the five-year rule is broken?
If a pension holder withdraws more than 30% of the fund as cash, all sorts of technical mayhem erupts.
HMRC will start talking about ‘crystallisation of benefits’ and ‘unauthorised withdrawals’, but effectively the matter boils down to the tax man can charge up to 40% of the cash withdrawal plus a 15% penalty surcharge on the offender.
In real terms that means if £100,000 is withdrawn against the rules, the tax bill could add up to a hefty £55,000.
Taking ‘best advice’ about QROPS
An offshore pension is a complex financial product – especially linked in with foreign currency fluctuation and inheritance tax rules.
Always consider taking best advice from a specialist QROPS advisor, and if you have a significant pension fund, this should tie in with relevant tax consultancy and estate planning.
Failing to do so could end up as an expensive mistake that could ruin your carefully laid retirement funds.