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Expats urged not to lose sight of QROPS benefits
| Published: | 27 Jun at 6 PM |
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However confusingly expat IFAs describe QROPS, the original intent in 2006 was simple – to comply with EU rulings giving expat pensioners living permanently overseas easier access to their cash.
No mystery there, but many pension savers seem to have lost touch with this basic truth. QROPS have nothing to do with tax avoidance, early access to funds or any other convoluted reason IFAs in expat destinations may dream up.
QROPS also benefit overseas workers nearing retirement who have worked in the UK over time, thus building up pension savings with their UK employer or UK-based pension provider.
In those cases, pensions can either by taken back to the UK or moved to an overseas jurisdiction should the pensioner settle abroad.
Moving your pension overseas does offer tax efficiency as, in most QROPs jurisdictions, tax laws are more relaxed and tax rates are lower than in the UK. Other options include more flexibility due to a wider range of markets, currencies and commodities than are available in the UK, plus less risk of regular payouts being adversely affected by exchange rate fluctuations.
QROPS are structured to pay out in the currencies of most popular expat destinations. Given that expats who base their QROPS in the UK must pay tax on their drawdown at the marginal rate of 40 per cent after the initial £75,000 tax-free amount is taken, it makes good sense to transfer to an overseas-based QROPS.
On a fund of, say, £300.000, tax must be paid on £225,000, gifting a horrendous £90,000 to HMRC. However, George Osborne has not yet clarified whether overseas expats with QROPS will be treated similarly to British pension savers as regards drawdowns and, unless the chancellor brings in special rules, overseas QROPS will be taxed in their base jurisdiction, giving significant savings over the British tax rate.
No mystery there, but many pension savers seem to have lost touch with this basic truth. QROPS have nothing to do with tax avoidance, early access to funds or any other convoluted reason IFAs in expat destinations may dream up.
QROPS also benefit overseas workers nearing retirement who have worked in the UK over time, thus building up pension savings with their UK employer or UK-based pension provider.
In those cases, pensions can either by taken back to the UK or moved to an overseas jurisdiction should the pensioner settle abroad.
Moving your pension overseas does offer tax efficiency as, in most QROPs jurisdictions, tax laws are more relaxed and tax rates are lower than in the UK. Other options include more flexibility due to a wider range of markets, currencies and commodities than are available in the UK, plus less risk of regular payouts being adversely affected by exchange rate fluctuations.
QROPS are structured to pay out in the currencies of most popular expat destinations. Given that expats who base their QROPS in the UK must pay tax on their drawdown at the marginal rate of 40 per cent after the initial £75,000 tax-free amount is taken, it makes good sense to transfer to an overseas-based QROPS.
On a fund of, say, £300.000, tax must be paid on £225,000, gifting a horrendous £90,000 to HMRC. However, George Osborne has not yet clarified whether overseas expats with QROPS will be treated similarly to British pension savers as regards drawdowns and, unless the chancellor brings in special rules, overseas QROPS will be taxed in their base jurisdiction, giving significant savings over the British tax rate.
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