QROPS
QROPS Questions Answered for Expats
In this article we try to outline and answer some of the most asked questions. Pension schemes and planning can be extremely complicated so we suggest increasing your knowledge by reading other articles. After you have read this article, follow this link to find out more about QROPS.
What is a QROPS?
QROPS means:
‘Qualifying’ – This confirms the scheme meets HM Revenue and Customs criteria for a pension scheme
‘Recognised’ – The country where the scheme is based regulates the provider
‘Overseas’ – Overseas is outside the UK, which comprises England, Scotland, Wales and Northern Ireland
‘Pension Scheme’ – An investment product that provides retirement income
Who can invest in a QROPS?
Anyone with a UK pension who lives outside the UK
Can my UK pension fund be transferred to a QROPS?
Yes.
Can I transfer my protected rights from a UK pension?
If the QROPS accepts protected rights transfers, yes. Some schemes may not.
Can I transfer my state pension entitlement in to a QROPS?
No.
How do I apply for a QROPS?
You can’t apply directly; you need to go through a specialist QROPS financial advisor who will give you ‘best advice’ on a scheme that matches your needs.
How long does it take to set up a QROPS?
Offshore pensions take about 4-16 weeks to set up on average
Is it always better to transfer a UK pension in to a QROPS when leaving the country?
Not necessarily. Everyone has different financial circumstances that must be taken in to account when giving pension and financial advice. Saying that, QROPS are the best offshore pension investment for the majority of UK expats.
Do I have to live in the same tax jurisdiction as where my QROPS is set up?
No. There is no reason why you should not live wherever you wish or move from one country to another leaving your pension established in a different tax jurisdiction. Tax issues may arise if you move back to the UK.
Will my investments be restricted in a QROPS?
This will vary from between providers, but generally, the investment rules are much less restrictive than in the UK.
For instance, a UK pension can only invest in UK stocks and shares in Sterling. A QROPS can invest in any country’s stocks and shares in any currency.
Can a QROPS invest in property?
Yes. Investing in commercial property is no problem, however, the same rules apply to a QROPS as a UK pension regarding residential property for the first five years of the policy. This means you would face a tax penalty for investing in residential property in that time.
After the first five years, the type of property you could buy as an investment would be subject to the pension rules of the tax jurisdiction where your policy was established. Normally purchasing property is not a problem at all.
Why is there a five-year rule?
HM Revenue and Customs imposes a five-year holding period on a QROPS that means UK pension rules are applied to the pension for that period.
The rules say the pension holder has to be absent from the UK for five clear tax years – that is April 6 one year to April 5 the following year.
Once that period has passed, the pension holder is considered non-resident in the UK and the pension is subject to the rules of the tax jurisdiction where it was established.
The pension holder is subject to the tax rules of the country where they are now resident.
I’ve heard I can draw my entire pension fund as cash after the five-year period has lapsed
This is a misconception. QROPS rules say that 70% of the pension must be retained to fund payments for retirement.
The maximum cash lump sum that can be drawn is 30% of the fund – and that’s only if the QROPS is Isle of Man based. All other QROPS only allow a 25% draw down.
Do I have to buy an annuity with the 70% pot?
No. A QROPS does not place any obligation on the pension holder to buy an annuity, which is one of the attractions for expats. This also means that because there is no annuity, your pension does not die with you but remains in your estate to be passed on to your beneficiaries.
Does my estate have to pay inheritance tax on the fund when I die?
It depends. Certainly you do not have to pay UK inheritance tax as a non-resident but you may be liable for tax in the country where you live.
The leading company that supplies QROPS solutions is Qrops Adviser. To find out more about this company and how they can help your situation, follow this link for further QROPS information.
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Add comment July 5, 2009