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UK pensioners overseas to face tax increased tax bills
| Published: | 7 Dec at 6 PM |
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A hidden message in the Chancellor’s Autumn Statement indicated a government plan to align the process of taxation on overseas pension with that of UK pensions.
At the present time, pensioners living overseas and taking their income from the so-called Qualifying Registered Overseas Pension Schemes’, (QROPS), are only paying income tax of 90 pc on their earnings from the fund. The recent proposal will increase the tax payable to 100 pc, bringing it into line with the amount charged to UK pensioners.
The reason behind the change appears to be the government’s intention to make pension transfers to overseas jurisdictions less appealing to retirees by simply increasing the tax liability of the scheme. The government’s argument concentrates on its contribution via tax relief to pension savings which, it says, entitles it to the income tax paid once the pension cash is withdrawn. Higher rate taxpayers are, at present, taxed at 36 pc with the increase to 40 pc expected to apply. In addition to the changes on income tax, government measures to toughen the requirements regarding setting up QROPS are in the pipeline.
The focus on QROPS is part of an overall crackdown on pension scams including a UK-wide ban on cold calling. Whilst this is a positive step towards reducing the huge number of pension frauds which have taken place since pension liberation was announced, it does nothing to help retired expats overseas who are even more at risk than those in the home country. At the same time, it’s been calculated that British pensioners electing to live in EU member states after Brexit could lose around £50,000 over a 20-year period due to the UK state pension being frozen. Along with a monthly loss due to the shaky state of sterling since the referendum, the combination may well result in a majority of pensioners relocating to the UK.
At the present time, pensioners living overseas and taking their income from the so-called Qualifying Registered Overseas Pension Schemes’, (QROPS), are only paying income tax of 90 pc on their earnings from the fund. The recent proposal will increase the tax payable to 100 pc, bringing it into line with the amount charged to UK pensioners.
The reason behind the change appears to be the government’s intention to make pension transfers to overseas jurisdictions less appealing to retirees by simply increasing the tax liability of the scheme. The government’s argument concentrates on its contribution via tax relief to pension savings which, it says, entitles it to the income tax paid once the pension cash is withdrawn. Higher rate taxpayers are, at present, taxed at 36 pc with the increase to 40 pc expected to apply. In addition to the changes on income tax, government measures to toughen the requirements regarding setting up QROPS are in the pipeline.
The focus on QROPS is part of an overall crackdown on pension scams including a UK-wide ban on cold calling. Whilst this is a positive step towards reducing the huge number of pension frauds which have taken place since pension liberation was announced, it does nothing to help retired expats overseas who are even more at risk than those in the home country. At the same time, it’s been calculated that British pensioners electing to live in EU member states after Brexit could lose around £50,000 over a 20-year period due to the UK state pension being frozen. Along with a monthly loss due to the shaky state of sterling since the referendum, the combination may well result in a majority of pensioners relocating to the UK.
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