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QROPS and SIPPs Pension

Posted by QROPS on April 10, 2012 at 12:20 AM

The holy grail of pensions for many ex pats are the tax-effectiveand flexible QROPS pension schemes.

The problem is huge numbers of ex pats do not qualify to take out aQROPS.

To switch any UK pension funds in to a QROPS, the pension investorhas to have left the UK permanently or be about to do so.

Keeping a home in the UK and working abroad does not cut the mustardwith HM Revenue and Customs.

Maintaining ties with Blighty while earning a tidy tax-free incomein Oman does not make someone an ex pat under complicated residency rules.

So if a QROPS is out of the question, what’s the best alternativefor a UK taxpayer working overseas.

Numerous pension options are available, but one worth looking at isa SiPP - short for self-invested personal pension.

SiPPs are the onshore versions of QROPS and offer many of theflexible investment advantages that come as standard with the QROPS.

Like a QROPS, a SiPPs can include a range of funds, shares, bondsand gilts; commodities, hedge funds and derivatives; and commercial property.

The big advantage is as a UK taxpayer, any contributions attract taxrelief at the highest rate of income tax - then the fund including the taxrelief can be swopped overseas in to a QROPS if and when the investor becomesan official ex pat.

This year, the government has removed some of the more unfriendlytax hurdles that discouraged investment, including the obligation to buy andannuity before the age of 75 years old.

Inheritance tax issues are also more streamlined for some investors.

Now’s a good time to start a SiPP - the maximum annual contributionis £50,000, but unused allowances from the last three years can also be rolledover if you have the cash.

Consolidating lots of smaller pensions in to a SiPP makes it easierto keep tabs on investments, but check out any penalties and exit fees - anddon’t leave a pension scheme with extra contributions from an employer.

To read more about whatis a QROPS pension then read more further down this page. There arehundreds of articles and blogs out there, many with good free information. Wesuggest reading up as there are constantly new rules and law changes



Posted by qrops on November 16, 2009 at 10:09 AM

Before qrops transfers were introduced, HMRC were entitled to charge at least 25% tax (depending on the tax code of the scheme member) on transfers of UK funds overseas. This was particularly galling to people who intended to retire to a country that taxed withdrawals on pension funds, because the member would pay 25% or over to HMRC, and then pay income tax in their destination country on withdrawing their remaining monies.


April 2006 brought about a sea change in UK pensions generally. It had long been felt in the investment community that the regulations surrounding pensions were so complex that they restricted rather than protected or encouraged investment activity. So the government rolled out their Pensions Simplification initiative, which as its name suggests was designed to simplify and codify the rules that govern what pension funds are allowed to do.


qrops is a Qualifying Recognised Overseas Pension Scheme , and was introduced in the Pensions Simplification regime.This is a fund that HMRC recognises as being one that is regulated as a pension in its host country, and taxed as such there. The HMRC website has a list of approved QROPS, which does change from time to time. There are hundreds to choose from, and the scheme member does not have to reside in the country in which their QROPS pension is based.


The scheme is only viable if you intend to leave the UK for at least 5 years. During the first 5 years of the scheme member’s absence from the UK and the QROPS transfer, HMRC is entitled to receive reports from QROPS providers about any withdrawal activity from the fund. If the member returns to live in the UK within that initial 5 year period, there is a possibility that HMRC could impose a tax liability. If this is something that you plan to do, check with your QROPS adviser, as your return needs to be carefully managed.


The good news is that if you stay outside of the UK for more than 5 years after the QROPS transfer, HMRC no longer take an interest in the fund, and you need only worry about the tax regimes of the jurisdiction of your QROPS provider and the place you are living.


Foreign tax regimes


The QROPS pensions available on the HMRC list span a variety of jurisdictions and financial institutions. An unbiased QROPS adviser who is not tied to any particular QROPS provider should be able to choose from any QROPS pension on the list, and will be able to do the shopping around for you.

The adviser you choose should have experience of many foreign jurisdictions and be familiar with their tax treatment of pensions. It is important to understand how foreign jurisdictions work together and whether they have signed double taxation treaties, to avoid residents and investors being taxed twice on the same income. For example, if your QROPS is in country A and you live in country B, you need to ensure that both countries will not take a slice of your retirement income in tax.


Can I choose a foreign pension scheme that is not on the list?


Transferring your UK pension fund to a foreign scheme that is not on HMRC’s list is not advisable. Not only can HMRC levy a significant tax charge on the transfer, but they also have the power to impose a significant fine if they think that the transfer was effected with the intention of avoiding or evading UK tax.


What about inheritance tax planning?

Under UK pensions regulations, members must purchase an annuity or another income bearing product by the age of 75. The penalty for not doing so can be a tax charge of as much as 82.5%. This is ostensibly because the government wants to ensure that the scheme member is providing an income for themselves, and reduces the likelihood of them being dependent on the state.


However, the disadvantage of this approach is that there is little flexibility if you really wanted to grow a fund to pay off a mortgage or give funds to a family member. The system is also unpopular from the point of view of what happens on the member’s death: the annuity dies with him or her and there is nothing to pass on to beneficiaries of the deceased’s estate.


If you are planning to leave the UK and make a qrops transfer on the other hand, you can choose a QROPS pension that does not have any requirement to purchase an annuity with your funds. Or perhaps one that permits withdrawals of larger lump sums than HMRC will allow. That way there will be something to leave to your beneficiaries. With a careful choice of jurisdiction for your qrops fund, you may find that the sum can be lawfully transferred to your beneficiaries after your death free from any kind of inheritance tax.