Expat IFA QROPS / QNUPS

In April 2006 UK pension legalisation changed significantly as a result of the 2003 European Union directive on free movement of capital.  

This change allows the transfer of UK based pension schemes into an arrangement called a Qualifying Recognised Overseas Pension Scheme (QROPS)

The advisers at Expat IFA can organise the transfer of pensions from the UK to a QROPS. We can also tailor the underlying investment to match your specific retirement goals and objectives.

Expat IFA will only use QROPS providers that are authorised by HMRC and can evidence continued compliance with the QROPS rules set out in pension legislation.

Qualifying Recognised Overseas Pension Schemes (QROPS)

Working with our professional partners Expat IFA will seek to offer cost effective overseas pension solutions to private or commercial clients wherever they are in the world.  

There are many QROPS options available to our clients to meet their own specific requirements. Expat IFA can tailor the overseas pension solution using independent QROPS providers based in several locations such as the Channel Islands, Malta and New Zealand.

All the Expat IFA QROPS schemes we advise on are registered with HMRC in the United Kingdom. Our QROPS service liaises with the pension trustees, pension custodians and your UK based pension administrators to collate all the relevant administration and paperwork for each pension transfer to ensure the transfer is processed as smoothly as possible.

The key benefits of a QROPS

No UK income tax

Income from UK pension arrangements is subject to income tax. It is collected as a withholding tax at 20%. This tax is applied to everyone in receipt of UK pension income whether or not they live in the UK and with no exemption for foreign nationals.

Transferring pension rights to an overseas pension scheme means that UK income tax on pension income can be legitimately avoided.

No UK Inheritance tax

Pension funds that are transferred to an overseas pension are also taken outside the UK inheritance tax net, which can result in a significant succession planning benefit.  

Currency

A UK based pension will only pay income in sterling. Overseas pension schemes allow for the payment of pensions in currencies other than sterling, providing a valuable safeguard for expats. Pension money held inside a QROPS can be gradually moved over to US dollars or Euros thereby helping to minimise the currency risk.  

Freedom of investment

An overseas pension allows you much more investment flexibility than a UK scheme. You can even invest in property, your own business or a scheme which allows you permanent rights of residency in the US!                                

FAQs

Is there a minimum amount required within a UK pension to transfer into a QROPS?

Generally, there is no minimum amount required although on smaller pension pots below, roughly £40,000, the transfer is not cost effective.  

Expat IFA can find out for you the value of your pension scheme and can offer open and honest advice to see if it's cost effective to transfer into an overseas pension.

Am I able to transfer protected rights funds into a QROPS?

In most cases yes. As long as the QROPS provider will accept protected rights (which most do) it isn't a problem.  

It's important to understand that transferring to a QROPS may result in the loss of certain protected rights, including contracted out rights, or rights accrued under a defined benefit scheme. Expat IFA will evaluate your exposure to this and ensure you fully understand the consequences.

Can I transfer benefits that are in payment to a QROPS?

Most pension schemes will allow you to transfer benefits into a QROPS. The exceptions are annuities in payment and final salary pensions in payment.  

Can I purchase residential property with my QROPS fund?

No. HMRC have recently declared that no residential property can be purchased through a QROPS. For residential property already transferred into a QROPS, these transfers may be subject to a tax charge of up to 70%. Please discuss this with one of our advisers so that we can advise on the best QROPS and best jurisdiction for you.  

When is it not a good idea to transfer to a QROPS?

This is down to the individual circumstances of the client. An example could be a client's pension which has a guaranteed level of growth or income. This would be lost by transferring to an overseas pension.  

Expat IFA will always review and analyse your UK pension schemes to make sure you are aware of the benefits and drawbacks of transferring to a QROPS.

Which overseas country does my pension go to?

A country which offers a QROPS is called a jurisdiction. There are several jurisdictions available and they offer varying levels of benefit to the client. A strong example would be to use the Channel Islands at the moment as the volume of providers offering QROPS  has led to lower costs to the client.    

What are the costs associated with a QROPS?

Most modern QROPS schemes have fixed charges now that are far more cost effective than a percentage charge. They can be as low as £700 to create a QROPS. It's important to remember that there are other costs associated with a QROPS, such as annual costs from the QROPS provider, the charges levied by the underlying investments and the custodian who has to actually hold the money (a bank or insurance company).  

Expat IFA will show all of these charges as a percentage annual management cost. This will then be compared with what you are currently being charged in the UK so you can then make an informed decision on whether the benefits outweigh the cost.

Qualifying Non-UK Pension Schemes(QNUPS)

In February 2010, a new HMRC statutory instrument came into force This creates significant opportunities for British expatriates to save local taxes in the country in which they are tax resident as well as UK inheritance tax (IHT).

The UK legislation created a new type of trust known as Qualifying Non-UK Pension Schemes (QNUPS) - which should not be confused with Qualifying Recognised Overseas Pension Schemes (QROPS). The purpose was to correct an error in the 2004 Finance Act to ensure any transfer to a QROPS would not become liable to UK IHT.

QNUPS allow retired expatriates to continue to put money into a pension scheme:

• There is no maximum age at which you can invest in a QNUPS.
• The member does not need to have any earned income from employment in order to make a contribution.
• There is no maximum contribution that can be made into a QNUPS.

The rules are sufficiently flexible to allow persons over 85 years of age who have been retired for 25 years to put large investments into a QNUPS and immediately create significant tax advantages for themselves.  

The benefits of QNUPS for retired British expatriates

A QNUPS is a pension scheme trust and as such you are entitled to take a cash lump sum and income during your lifetime. The remainder of your fund being available to pass on to your spouse or heirs on your death free from all UK taxes.  

The following features are available through a QNUPS:

• Income can be taken from age 55 (after 6th April 2010) or it can be deferred as it does not need to be taken until age 75. In certain countries it can be paid in a manner where a significant portion may be paid to you tax free.
• When income is taken it is drawn down from the fund, thus leaving scheme assets invested. Otherwise the assets grow free from tax.
• On death the value of the QNUPS will be exempt from UK inheritance tax.
• A QNUPS offers considerable investment flexibility and choice and include property. Furthermore, assets can be invested and any benefits taken in a currency of choice, giving the opportunity to remove currency risk.
• The trustees of a QNUPS have no reporting obligations to HMRC unless the scheme also holds any assets transferred from an authorised UK pension scheme. A pension member can have both a QROPS and a QNUPS.

QNUPS and UK Inheritance Tax

A QNUPS will avoid UK inheritance tax even if the pension member is UK domiciled. There is no need to wait seven years to avoid the tax or have to give the assets away, so the member and their spouse/partner can continue to benefit from the assets.  

QROPS and QNUPS

If the member already has a QROPS, then effectively they have a QNUPS. The only difference is that a QNUPS may invest in property or indeed other non-regulated investments (e.g. fine wine and antiques). If a QROPS is investment regulated (normally advisable) then the member may not invest in such non-regulated investments. This is due to the 2004 UK Finance Act which raises a 70% tax charge on any property investment made with UK pension transfer monies.  

Thus an investment regulated QROPS (a taxable Asset Transfer Fund - TATF) will have serious implications on transfer to a QNUPS and care needs to taken if considered.