- It's never too late (Non-Habitual Residence (NHR)) - Published Oct 2018 by Raoul Ruiz Martinez
- Are You on Top of GDPR? - Published May 2018 by Raoul Ruiz Martinez
- Financial Fitness - Published Jan 2018 by Raoul Ruiz Martinez
- Six Tough Questions You Need to Ask - Published in Nov 2017 by Raoul Ruiz Martinez
- Plan for a Successful Retirement - Published Oct 2017 by Raoul Ruiz Martinez
- 5-year Plan, 10-year Plan, 30-Year Plan. Do you have yours? - Published August 2017 by Raoul Ruiz Martinez
- The Will Bank Opportunity by John L Douglas - Published in The Journal of the Law Society of Scotland 17th July 2017
- August 2017 - HMRC & Offshore Accounts for UK Residents
- A New Year, A New Start…. January 2017
- Inheritance Tax (IHT) Planning (Part 3) - Published November 2016
- Planning for a Better Future? Forget Trusts. Think Family Investment Companies! - Published Nov 16
- Inheritance Tax Planning (Part 2) - Published August 2016
- BREXIT: What do we know as investors and what are the unknowns? Published in July 2016
- Inheritance Tax Planning (Part 1) - Published in June 2016
- Why is tidy a key word in financial planning? Published May 2016
- The Future of International Financial Planning - Published in March 2016
- Volatility: Global Financial Markets and Tax - Published Feburary 2016
- Financial Information Sharing for 2016 - Published December 2015
Summary of the 2015 Pension Flexibility - Published 5th May 2015
Offshore bonds get £5k tax free savings boost - Published 29th April 2015
How your peers invest clients’ money: Finesco Financial Services Ltd - Published in Professional Advisor 25th March 2015
- TRUSTS : Good Reasons to Never Make a Change - Published March 2015
- Saving....for Ourselves - Today's children will need A £2.4m pension pot.
- Cash is King - Article Published 25th July 2013
- Saving – Don’t Put Off Till Tomorrow What You Can Do Today - Article Published 23rd May 2013
HMRC Statutory Residence Test - 6th April 2013
- QNUPS Article Published 23rd March 2013
- Old New Year - Article Published 24th January 2013
- Retirement and Savings – The Facts on Inflation published November 2012
- Finesco Prsentation on New Pension Rules - A New Generation Begins
HMRC Pension Tax Relief Changes
- Emergency Budget:
- Budget Day: 22 June 2010
- Capital Gains Tax Angles
- Long Term Care
- QROPS: Transferring UK Pensions Overseas
- The State of Pensions
- ISA Changes Affecting You



QROPS: Transferring UK Pensions Overseas
If you are now living overseas but have ever worked in the UK, it is likely that you have built up pension funds there. If you are planning to retire outside the UK there may be a case to consider transferring your pensions out of the UK. Following changes in UK law in 2006, it is now easier to transfer pensions abroad and there are more reasons for doing so in many instances.
If you are now living overseas but have ever worked in the UK, it is likely that you have built up pension funds there. If you are planning to retire outside the UK there may be a case to consider transferring your pensions out of the UK. Following changes in UK law in 2006, it is now easier to transfer pensions abroad and there are more reasons for doing so in many instances.
Under UK law, you cannot gain access to your UK pension funds until you reach the normal retirement age, which is increasing from age 50 to age 55 in April 2010. However, it is possible to move the funds that are building up in the pension to a scheme that is resident outside the UK. Funds can be moved as long as the overseas scheme is registered as a “Qualifying Recognised Overseas Pension Scheme”, or “QROPS”. To become a QROPS, the overseas scheme must fulfil certain criteria as to when and how the pension can be taken (not earlier than age 55, and no more than 30% as a lump sum in retirement), and register with the tax authorities in the UK.
So why would moving your pension make sense?
One big advantage is that, should you retire outside the UK, your pension payments from a UK scheme are treated as UK taxable income. Not a problem if you retire to a country with an agreement with the UK that allows the UK pension to be paid without deduction of tax, but not all countries have such an agreement. – a good example being Hong Kong. So, if you retire in Hong Kong, you can avoid UK tax on your UK pension by transferring it to a QROPS. With the UK moving to a top rate of 50% for high-income earners, this is certainly worth considering.
Other advantages include the ability to have pension income denominated in a currency other than sterling, and the ability to appoint your usual investment manager to manage your pension fund.
However, there is one other major advantage to transferring to a QROPS if you have large funds in a UK pension fund. To explain this, it is first necessary to examine what happens if you leave your money in a UK scheme. Upon reaching age 55, you have several retirement options:
(i) Leave the fund invested and defer taking your pension
(ii) Take a maximum lump sum equal to 25% of the fund value and defer taking the pension
(iii) Take a maximum lump sum equal to 25% of the fund value and draw an income from the remaining fund
(iv) Draw an income from the whole fund
If you decide to take an income, you can either buy an annuity or draw income directly from the fund. Many people do not buy an annuity at this age due to the unattractive rates available, and because there would be no fund available to heirs on death.
If you take your lump sum and do not buy an annuity, then your scheme is in what is termed “drawdown”.
If you die between the ages of 55 and 75, and your pension is in drawdown, then the remaining fund can be left as a lump sum to your heirs. However, the fund will suffer a tax penalty equal to 35% of the fund value.
If you are still alive at age 75, then you must now choose to either purchase an annuity, or the fund remains in a type of drawdown called “Alternatively Secured Pension”, or ASP.
Choosing an annuity will again mean no fund on death will be available to heirs. If you choose ASP, you can leave the remaining fund to heirs, but the sting in the tail is that the fund faces perhaps one of the world’s highest tax liabilities. With a combination of tax penalties and inheritance tax, the bill can be as high as 82% of the fund value!
If you transfer your UK fund to a QROPS, however, it is possible to avoid this potential liability altogether. That is because, once you have been non-UK resident for at 5 years, the tax penalties outlined above no longer apply to a QROPS.
That’s the advantages of QROPS, but there are pitfalls to be wary of before considering a transfer.
Firstly, there are schemes around that claim to allow you to take your entire pension fund in one lump sum. A very attractive proposal, but be aware that these schemes are considered very abusive by the UK tax authorities, and they have taken action against several of them, leaving people who transferred facing a bill of up to 55% of their pension fund should they ever return to the UK.
You also need to consider whether the costs involved will be worth the tax savings, particularly in relation to smaller funds, and funds that have guaranteed income promises attached to them.
Finally, QROPS schemes are based in various jurisdictions, each offering certain advantages and disadvantages, depending on your own particular circumstances. This article is necessarily of a general nature only and is not intended as specific or individual advice.
October 2009.
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