FAQ 1 – What are Qualifying Recognised Overseas Pension Schemes?
- A Qualifying Recognised Overseas Pension Scheme, commonly abbreviated to QROPS is;
- Qualifying to receive a transfer from a UK pension scheme.
- Recognised by Her Majesty’s Revenue & Customs (HMRC)
- Overseas in a jurisdiction that will adhere to certain pension rules or has a formal double taxation agreement and exchange of information with the UK.
- Pension Scheme that is available to residents of the overseas jurisdiction.
FAQ 2 – Should I transfer my pension to a QROPS?
- If you are moving or are already residing abroad, with no intention of returning to the UK, then a QROPS may well be the best course of action.
FAQ 3 – Does it matter where the QROPS is established?
If you return to the UK then the transfer will have a neutral affect as UK pension regulations will apply to the QROPS. Therefore a transfer should usually only be considered by those who intend to live outside the UK permanently.
FAQ 4 – What happens if I return to the UK?
It is possible to transfer a pension where benefits are in payment provided that they are not from an annuity or certain company pension schemes
FAQ 5 – Should I transfer protected rights benefits to a QROPS?
It is possible to transfer protected rights to a QROPS. However, you will forfeit the protection afforded by the UK pension regulations. We recommend that you seek advice from a suitably qualified financial adviser before making your decision to transfer.
FAQ 6 – Can my existing UK pension transfer investments rather than selling them and transfer cash to the QROPS?
It is possible for a QROPS to receive assets transferred from a UK scheme. However, both the UK pension and QROPS must be willing and able to complete the transaction.
FAQ 7 – Is a transfer to a QROPS a Benefit Crystallisation Event (BCE)?
- Any transfer of uncrystallised pension rights before age 75 will be a benefit crystallisation event. If any of the transfer is above the available lifetime allowance the excess will be taxed at 25%. If the pension rights are protected then the lifetime allowance charge should not apply.
- Pensions in payment (pre and post 75) can be transferred to a QROPS. Transferring an Unsecured Pension (USP) to QROPS will be a BCE if the drawdown commenced after April 2006. The lifetime allowance test is applied in the same way as conversion to an annuity or reaching 75 and converting to an Alternatively Secure Pension (ASP). Transferring a USP to QROPS is not a BCE if drawdown commenced before April 2006. Transferring ASP to QROPS is not a BCE.
FAQ 8 – Can I transfer commercial property held by a UK pension?
A UK pension can make a transfer of commercial property to QROPS. We have been advised that no stamp duty is payable on the transaction unless the property is mortgaged and in which case stamp duty is payable on the value of the debt. When the property has been transferred all of the rental income less any allowable expenses would be taxed at 20% when held by an offshore company. Any capital gains would continue to be tax-free.
FAQ 9 – Is any tax paid on my QROPS?
No, depending on the jurisdiction where you are basing your QROPS there should not be tax payable on your pension.
FAQ 10 – What is a QNUPS?
- QNUPS (Qualifying Non-UK Pension Schemes) have been available since February 2010 after announcements from the UK government regarding the exemption of particular overseas pensions schemes from UK IHT (Inheritance Tax). The HMRC specifies the criteria for pensions schemes that will not attract IHT – they must be overseas and are not restricted to countries with signed Double Taxation Agreements with the United Kingdom.
- A QNUPS should be considered by individuals who are UK residents, or are resident overseas but retain their UK domicile for IHT.
- QNUPS are exempt from UK IHT and this provides the major draw card – savers can pass on their assets free from death duties to their beneficiaries. A QNUPS can hold most investments – including residential property and other assets such as antiques which are not typically held by other pension schemes. A QNUPS cannot typically be accessed before the age of 55. However, depending on the scheme, some QNUPS may allow for a loan or access to larger and earlier tax free lump sums than is standard for a UK pension.
FAQ 11 – Can I transfer my QROPS to a QNUPS?
Provided that you have been non-UK tax resident for 5 complete tax years or more then yes it is possible to transfer your QROPS to a QNUPS
FAQ 12 – How do I know if it’s a legitimate scheme?
- All QROPS providers will have a letter from HMRC confirming their QROPS authorisation number.
- You or more importantly your adviser should check the basis of QROPS notification with HMRC.
- The regulatory controls in the overseas jurisdiction compared to the Financial Services Authority (FSA).
- Comparable consumer protection to the Financial Services Compensation Scheme (FSCS) if things went wrong.
- Who is controlling and administering your Pension fund and what is the extent of their powers within the Trust deed.
- Due diligence on the QROPS company and Trust and its Directors.
- QROPS approved plans that agree to have their details published are listed on the HMRC website. This is updated every fortnight and now totals over 2000 with many more schemes not published. A UK Pension administrator will confirm a QROPS listing before agreeing to a transfer. If not listed, the administrator will contact HMRC for confirmation.
HMRC clearly states the listing of a QROPS should not be seen as a recommendation and you should always seek advice from a UK Financial Services Authority authorised and regulated firm. Feel free to contact us if you require additional advice and guidance.
FAQ 13 – What Pensions can be transferred to a QROPS?
A QROPS may be used to receive transfer values from any UK registered pension scheme.
Typically these will be:
- Occupational schemes (company pensions)
- Additional Voluntary Contributions (AVC)
- Small Self Administered Pension Schemes (SSAS)
- Self Invested Personal Pension Scheme (SIPPS)
- Personal Pensions
- Unsecured Pensions (income drawdown)
Each of these arrangements will have particular features and benefits which need full understanding and advice before any transfer to a QROPS.
Schemes that may not be able to transfer will be:
- Secured Pensions
Where there is no transfer value available from the administrators.
FAQ 14 – Are there minimum and maximum transfers?
There is no limit to the size of funds that may be transferred and accumulated within a QROPS. A transfer from a UK registered pension scheme to a QROPS is a “benefit crystallisation event” (BCE). A test against the individuals’ lifetime allowance (£1.8 million for the 2010/11 tax year) will be performed and any excess would be taxed.
Prior to 5th April 2009 it was possible to apply to HMRC for enhanced protection which permits a sum in excess of the lifetime limit to be transferred without incurring an unauthorised payment charge.
FAQ 15 – What has the QROPS provider undertaken to provide to HMRC in the UK?
The provider has undertaken to provide information to HMRC on all benefit payments made from the plan when a member is either:
- Tax resident in the UK at the time the payment is made (or is treated as made), or
- Although not tax resident in the UK, they have been resident in the UK earlier in the tax year in which the payment is made (or is treated as made), or in any of the five tax years immediately preceding that tax year (UK).
When you have been non UK resident for five complete tax years the annual reporting by the QROPS to HMRC ceases.
Important: Most countries operating a QROPS will also have double taxation agreements with the UK. So whilst the QROPS may no longer provide the information, HMRC can request details.
FAQ 16 – What are the benefits of transferring to a QROPS?
The background to QROPS is to allow a mobile workforce and individuals to move freely without restrictions and not to have a UK Pension adversely affect their finances in their new residency.
The main reasons people who are considering being non UK resident consider QROPS are:
- Significant income tax savings and no withholding tax. All income is paid Gross.
- More flexibility on the level of income taken at retirement after five full UK tax years.
- No requirement to buy an annuity or alternatively secured pension at any age.
- On death pass the fund intact to spouse and heirs UK inheritance tax free and free of succession tax in many jurisdictions.
- No liability to future changes in UK Pensions taxation or legislation.
FAQ 17 – Who can transfer to a QROPS?
QROPS are open to anyone who has a transferable UK Pension fund.
For individuals who are still UK tax resident they will normally be permitted do so but should have an intention to become Non-UK tax resident for any benefit.
FAQ 18 – What are the qualifying criteria for a QROPS?
- Must be aged between 18 and 75 years of age
- You must be living outside of the UK or have the intention to leave the UK for a QROPS.
- You must have the intention to live permanently away from the UK.
- All nationalities are entitled to hold a QROPS if they have a UK pension
FAQ 19 – What happens if I return to the UK?
The QROPS provider will continue to report annually any capital and income payments until you have been non UK resident for 5 complete tax years. Therefore the QROPS mirrors UK Pensions legislation until you complete the 5 years rule (if ever).
Post five years there are UK tax advantages which should be discussed with your adviser.
FAQ 20 – What Pension benefits can be taken?
The rules relating to QROPS typically come into two categories which the QROPS provider will adhere to:
- An agreement that 70% of funds will be used to provide a lifetime income and benefits are not payable before minimum retirement age. OR
- If there is a double taxation agreement in force that contains provisions as to exchange of information and non-discrimination then the QROPS can adopt the rules of that country’s Pension or Superannuation legislation. In many cases affording greater flexibility.
Australia adheres to the second rule which allows the whole pension sum to be paid tax free if Australian resident.
Most QROPS plans are able to facilitate benefits via income drawdown, lump sum payments and annuities.
FAQ 21 – What age can benefits be taken from a QROPS?
If you have been UK resident within five complete tax years then UK Pension rules apply effectively preventing benefits before the age of 50 (55 from 6 April 2010).
Any benefits paid within five years of non UK residency and not in accordance with UK Pension rules will be an unauthorised payment. Tax charges that could apply include:
- Unauthorised payments charge
- Unauthorised payments surcharge
- Scheme sanction charge.
An unauthorised payment will be subject to a tax charge at the rate of 40%. The scheme member is liable for this.
The unauthorised payments surcharge must also be paid where the level of unauthorised payments made to or in respect of a member exceeds a certain limit in a year.
The limit is exceeded if all unauthorised payments made to or in respect of a member in a period of twelve months amount to 25% or more of the value of that member’s benefits under the scheme. The unauthorised payments surcharge is 15%. This is paid in addition to the unauthorised payments charge of 40%, so in some cases the member could face an effective tax charge of 55%.
FAQ 22 – What happens on death to a QROPS?
If a death benefit payment is made during the 5 year reporting period then the QROPS will report the payment to HMRC in respect of the deceased member. Any tax liability will depend on whether benefits have been taken in the form of cash and or income.
The Finance Act 2004 details the pension death benefit/lump sum death benefit rules.
Post five years non UK residency 100% of remaining funds should be paid to your beneficiaries.
FAQ 23 – Who can be a beneficiary on death of a member?
On the Member’s death the residual value is available to the named beneficiaries.
Careful planning is necessary as some overseas jurisdictions will restrict the beneficiaries and the amount they may receive.
FAQ 24 – Will a member of the QROPS Plan be liable for UK IHT?
The provisions in Finance Bill 2008 will give IHT protection to pension savings which have had UK tax relief and also to funds in QROPS Plans.
The Trust is outside of the Member’s estate and therefore IHT would not apply.
It is possible that the unauthorised payment consequences could occur but this charge is only likely to be applicable during the required reporting period (5 year non UK residency rule).
Great care is needed in some overseas jurisdictions and detailed advice should be sought in all cases. Whilst UK Inheritance tax may be avoided some jurisdictions may impose their own succession taxes either on the member or the recipient beneficiaries.
FAQ 25 – Can I cash-in my QROPS Plan in full?
The legislation covering QROPS does allow for encashment, and is considered as a member payment, which may give rise to a member payment charge, if the member has been non UK resident for less than five complete UK tax years.
Post five years non UK residency then the provisions of the Finance Act 2004 no longer applies and no UK tax is imposed on encashment.
Whilst sometimes seen as controversial the single largest number of authorised QROPS that exist and have received transfers from the UK is Australia which allows 100% of the fund to be received tax free.
Care though as many QROPS providers have given an undertaking to use 70% of funds to provide a lifetime income and must adhere to this or lose their QROPS status.
FAQ 26 – Is a QROPS subject to the same rules as a UK pension?
The same rules and regulations apply to a QROPS as a UK pension for a period of 5 years; once you have been a non-UK resident for 5 years or over, UK pension restrictions are lifted and the scheme no longer has an obligation to report to HMRC. Until this 5 year period is over, you must report any payments made to HMRC and you may be asked to complete a self-assessment return.
FAQ 27 – What’s the difference between a QROPS and a UK pension?
With a QROPS, you are not limited in the same way as you are with a UK pension, such as; less investment restrictions, no allowance cap (which is £1.8million in the UK).
FAQ 28 – I want to transfer my pension into a QROPS – how do I do this?
If you wish to transfer your pension into a QROPS there are a range of factors to consider, various jurisdictions and various schemes available. You will need advice in order to navigate your way. Speak to one of our financial consultants who can help you in this process.
FAQ 29 – How much money should I transfer into my QROPS?
There are no official restrictions on how much money you transfer into a QROPS, but it is a widely held opinion that for QROPS to be effective, you should have £25,000 to transfer as a minimum. You can combine more than one pension if you wish. If the fund is in excess of Lifetime Allowance currently £1.8 million, the excess proceeds will be taxable at the rate of 55%.
FAQ 30 – I want to return to the UK – what does this mean for my QROPS?
If you are planning on living back in the UK permanently or for work, your QROPS will become subject to the same regulations and tax treatments as a UK pension.
FAQ 31 – I only have a UK state pension – can I transfer this to a QROPS?
It is not possible to transfer your state pension into a QROPS – they are for corporate and private pensions only.
FAQ 32 – Will having a QROPS mean that I can’t get a state pension?
No, if you are retiring abroad, you can continue to receive your UK State Pension. You can also get pension yearly increases if you are in a European Economic Area (EEA) country or country with a special UK agreement. For a full list of countries with reciprocal agreements please go to here
FAQ 33 – I’ve already taken an annuity – can I still apply for a QROPS?
No, you can’t transfer your pension if you’re already taken a lump sum payment or an annuity
FAQ 34 – How much will it cost me to set up a QROPS?
QROPS costs differ depending on the scheme, location and the service level that you require. The main costs you will be looking at are the initial set-up fee and an annual management fee. Speak to one of our advisors who will help you find the most cost effective solution for you.
FAQ 35 – Is the purchase of an annuity necessary with a QROPS?
You do not need to buy an annuity if you have a QROPS, but providing your QROPS has been set up correctly, you have the option to do so if you wish.
FAQ 36 – I’ve heard that QROPS are flexible – what does this mean?
QROPS offer much more flexibility than UK pension schemes; you can withdraw your money as suits, adjust your portfolio and also pass on all of your money and assets as inheritance without the worry of inheritance tax.
FAQ 37 – I might want to change location, will this affect my QROPS?
If you live or work in another country, your QROPS will stay in the jurisdiction it was set up in. You can continue to make contributions regardless of where in the world you are living (remember though that if you move back to the UK, your QROPS will be bound by UK pension regulations).
You can receive income and contribute to your QROPS in any currency; so even if you move to several different locations, you can still use your QROPS.
FAQ 38 – I would like to manage my QROPS assets myself – is this possible?
It depends on your particular QROPS – some allow you to manage your own assets, while others will be restricted by certain conditions. It is a good idea to use a financial adviser for guidance, even if you wish to manage your QROPS assets yourself.
FAQ 39 – What costs are associated with transferring to a QROPS?
This will depend on your individual circumstances and the type of scheme being transferred. Typically the larger the fund the lower the overall cost in percentage terms. Total costs will be between 1.75% to 5% of the transfer value, on fund values between £25,000 and £2 million, plus additional fund management charges and annual administration costs.
Please feel free to contact us if you have any further questions or would like some help with setting up a QROPS.