When the excitement of an international move has calmed down, it’s time to screw on your “sensible adult” head and give the grown-up stuff like tax and pensions some serious thought.
So when whichoffshore.com offered me the opportunity to write a sponsored post about a popular expat pension option, I figured it was a good time to do some research.
When it comes to pensions, the chances are you’ve paid into something back home for a fair few years. If you decide to settle abroad, what happens to it? Well, here’s an idea; anyone with a UK pension scheme living overseas as an expatriate (or planning to) can transfer their existing pension into a QROPS (Qualifying Recognised Overseas Pensions Scheme.
What are QROPS?
Sometimes known as “offshore pensions” because the providers work from financial centers outside the UK, they were introduced in 2006 to simplify things, and they’ve become increasingly popular with British expats thanks to the tax advantages they confer.
Highly flexible, a QROPS can be set up in one country while the investor lives somewhere else. The pension grows in a low tax jurisdiction and the benefits can be paid out in any major currency in another country with low income tax rates.
The laws vary depending on the tax rules of the countries where the scheme is run and where the expat is resident, but all QROPS are based on the same HMRC tax and financial template. This kind of currency and market flexibility simply isn’t available to regular UK pension investors.
Is that legal?
While it might sound too good to be true, the “Qualifying” part means it meets HMRC rules and the “Recognised” bit means it’s regulated by the tax authorities in the country in which it’s opened – so it’s all above board. But you do need a reputable advisor who can recommend transfers to countries that provide equivalent consumer protection to that of the UK.
Not all overseas schemes qualify as QROPS and HMRC only allows transfers into schemes that meet certain criteria so it’s crucial you get careful advice.
While you cannot transfer British Government or state pensions, annuities or final salary schemes to a QROPS, having one won’t affect your entitlement to a UK state pension.
What are the benefits?
UK Pension funds are heavily taxed, in some cases up to 55%. Transfer into a QROPS can:
- avoid UK taxation
- avoid restrictions on how you spend and invest your fund
- avoid UK inheritance tax
- avoid exchange rate risks and costs
- afford greater flexibility and control over your money
Some experts reckon the opportunities offered by QROPS are just too good to last. Critics claim QROPS allow British savers generous tax relief while accumulating funds, then a way of avoiding British taxes when it comes to enjoying the benefits. If you think a QROPS may be for you, now might be the time to seek some independent financial advice. You can find further information at whichoffshore.com.
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