A Qualifying Recognised Overseas Pension Scheme (QROPS) is an overseas pension scheme that HM Revenue & Customs (HMRC) recognises as being eligible to receive transfers from registered pension schemes in the UK.
This allows anyone with a UK pension who is living outside of the UK or is intending to leave the UK to transfer their UK approved pension offshore without the deduction of UK taxation. This includes both pensions yet to come into payment and those already in payment.
The offshore jurisdiction of Guernsey is an ideal choice for investors given its high level of transparency, professionalism and compliance of HMRC regulations.
What are the benefits to a client of moving their pension from the UK?
Where a client is, or will shortly become non-UK resident, there are a number of significant advantages that
could be achieved by arranging the transfer of their UK Registered Pensions Scheme(s) to a QROPS, including:
Where a client is non-UK resident, there is no automatic right for pensions from UK registered Pension
Schemes to be paid gross. Liability depends entirely on the double taxation agreement, if one exists, between
the UK and the country in which the client is resident. Benefits from Guernsey pension schemes, for example, can be paid gross to all non-Guernsey residents.
On death before 75, any crystallised element of a UK Registered Pension Scheme will be subject to a 35% tax
charge. No such charge applies under Guernsey pension legislation, so provided the client has been non UK
resident for 5 or more tax years by the time they die, before age 75, these tax charges will not apply. Tax may
of course arise in the client’s new country of residence.
Note: Benefit crystallisation occurs when the UK pension is transferred to a QROPS and the transferred
funds are tested against the individual’s lifetime allowance. Tax may be payable on any funds exceeding
the client’s lifetime allowance at the time of transfer.
There is greater flexibility as to the method and levels of benefit payments which can be made from the
QROPS, particularly once the Member has been non-UK resident for the required period of time (currently 5
complete UK tax years).
Investments within the QROPS can be denominated in sterling, euros or US dollars to help avoid
currency fluctuation risk.
Benefit from the QROPS can be paid in sterling, euros or US dollars, enabling Members to match the
currency of benefit to that of their expenditure, so reducing the effect of currency fluctuations.
On death after age 75, any remaining funds in a UK Registered Pension Scheme cannot be distributed without
incurring Unauthorised Payments Charges, totalling 70%, and the excess will be subject to IHT meaning that
the overall tax liability is 82%. No such restriction applies under Guernsey legislation, so providing the client
has been non-UK resident for five or more tax years by the time they die after age 75, then these UK tax
charges will not apply. Tax may of course arise in the client’s new country of residence. (Investigation of such
will be the responsibility of the client’s Professional Advisor and Tax Advisor).
The benefit payment options under the QROPS mitigate the need to purchase a life company annuity.
Any unused assets within the plan will be paid to the Member’s estate or named beneficiaries which may
include a Trust. This ensures longevity of accumulated pension assets after death.
More about QROPS
