What is a Qualifying Recognised Overseas Pension Scheme (QROPS)?
A QROPS is a pension transfer scheme which is based in a jurisdiction other than the UK but is recognised by HMRC and follows the same standards, or equivalent, as a UK pension. Most expat UK pensions can easily be transferred into a QROPS, as long as the overseas scheme is registered with HMRC and is fully compliant with the standards of the jurisdiction it is domiciled in. QROPS's profile was increased after HMRC introduced a series of new pension rules on 6th April 2006.
The flexibility of a QROPS
Qualifying Recognised Overseas Pension Schemes (QROPS) give savers greater opportunity and flexibility to make their money work for them.
The reasons for this are manifold. For example, QROPS clients can enjoy tax efficiency without being subjected to all the UK restrictions determining how and when they must invest or spend the fund, while all the time also being able to enjoy the benefits of no maximum lifetime allowance, protection from UK inheritance tax, and greater currency options.
Additionally, although QROPS pensions are situated outside of the UK jurisdiction, the fact that they are recognised in the UK makes the process of transfer relatively straightforward.
A QROPS provides several key benefits, including the following:
- Reduced income tax on drawdown
- Removed requirement to purchase an annuity
- The ability to pass on remaining pension funds to beneficiaries on death, potentially without taxes
- Access to up to 30% of the fund as a Pension Commencement Lump Sum (PCLS)
- The ability to plan your drawdown in line with your income needs
- The ability to invest your funds with enhanced freedom and choice
Who benefits from a QROPS?
QROPS are a good vehicle for many kinds of investor, including those with deferred company schemes and those in possession of personal pensions. Those who have not resided in the UK for five or more consecutive financial years are in a position to derive particular benefit as they are not subject to HMRC restrictions relating to the spending of income and capital.
Additionally, all of the following types of pensions can be transferred to a QROPS:
- Executive Pension Schemes
- Small Self Administered Schemes (SSASs)
- Self Invested Personal Pension Schemes (SIPPSs)
- Superannuation Schemes
- Section 32 Pension Transfers and Personal Pensions
- Occupational Schemes
There are though some notable exceptions to eligibility. None of the following types of scheme qualifies for a QROPS transfer:
- Commenced Final Salary Schemes
- British Government Pensions (excluding NHS schemes)
- State Pensions
Finally if your pension is worth less than £100,000 it is unlikely that a QROPS will make economic sense as the set-up cost will probably not be offset by the tax savings.
When is it the right time to consider a QROPS?
Much will depend on your country of residence and other personal and financial circumstances. However, if you have lived outside the UK for five or more consecutive years, it is likely that you will derive significant benefit from making a QROPS transfer.
The same is also likely to be true if you became resident in a country outside the UK more recently or are considering doing so.
What is certain is that professional advice such as that provided by the team at Blacktower can help you ensure that your planning takes full account of all your personal circumstances and objectives.
Does a QROPS mean permanently cutting ties with the UK?
Fortunately, if you decide to retire abroad and to enjoy the benefits of a QROPS you can still continue to have a meaningful relationship with your country of origin.
It is possible to continue to visit and to stay in the British Isles, whether it is to visit family and friends or simply to spend time in the country. However, before you take out a QROPS it is essential to consider that you cannot spend more than 183 days in the UK in any given tax year.
Additionally, you cannot spend more than an average of 91 days per year in the UK when measured over a four year period. This is because any stays in the UK above these limits could result in you being considered as resident in the UK for tax purposes; something which would thereby invalidate your eligibility for a QROPS.
Day trips (visits that do not include an overnight stay) are not counted when tallying up days of residence. If you have any concerns at all about these rules you should discuss them with an adviser at Blacktower.
What information do you need to provide?
If you wish to make a QROPS transfer, your UK scheme administrator will need all of the following information:
- Your full name and date of birth
- Your national insurance number
- Your primary address as well as (if applicable) your last UK address
- Your telephone number
- The name and address of the QROPS
- Details of where the QROPS is set up and regulated
What about a QNUPS?
A Qualifying Non-UK Pension Scheme (QNUPS) allows the contribution of cash and assets that are not eligible for UK tax relief.
In essence, a Qualifying Non-UK Pension Scheme is nothing more than a definition.
This definition was introduced by Her Majesty's Revenue and Customs (HMRC) within "The Inheritance Tax (Qualifying Non-UK Pension Schemes) Regulations 2010" to rectify a previous omission in the Finance Act 2004 (which had effect from 6 April 2006). This omission restricted protection from UK Inheritance Tax to UK registered pension schemes and section 615(3) schemes only.
QNUPS schemes do provide some useful benefits for those looking to tax-efficiently set aside assets and capital for their retirement.