QUALIFYING RECOGNISED OVERSEAS PENSION SCHEMES (QROPS)

For UK Citizens and expatriates who have lived in the UK

Move your UK pension offshore to mitigate inheritance tax!

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On moving abroad, many British expatriates will have left their UK pension rights retained in their existing arrangements. These private pensions remain subject to UK pensions law with the effective requirement to purchase an annuity at a later stage (and in any case no later than attaining 75 years of age without the later prospect of huge tax charges otherwise). Additionally, UK taxation may be applied to pension payments.

Under UK legislation introduced in 2004, which became effective in April 2006, expatriates or UK residents who have a demonstrable intention to move overseas may transfer the value of their UK pension rights to a non-UK pension scheme and thus avoid all the normal restrictions imposed on the pension fund if it were to remain in the UK. The transfer must be made to a Qualifying Recognized Overseas Pension Scheme (QROPS for short) that is approved by HM Revenue & Customs (HMRC).

QROPS

A number of basic conditions must be fulfilled in order for a transfer to a non-UK pension scheme to be considered advisable. Cases should be examined on an individual basis, but the primary rules include:

  • The pension holder must become non-resident of the UK and remain so for at least five complete UK tax years.
  • The existing UK pension scheme can be in drawdown (i.e. benefit is being paid from the fund directly, now referred to as unsecured income) before transferring to a QROPS. However, there are restrictions and if the permitted lump sum (nearly always 25% of the value of the pension rights) has been taken, no further lump sums are allowed.
  • UK rules impose a statutory lifetime allowance relating to the amount payable from UK registered pension schemes that will be treated as tax-privileged. For the tax year 2010/11 this allowance is £1.8m. Transferring benefits to a QROPS is known as a crystallization event and the value of pension rights transferred in excess of the lifetime allowance will be taxed at the rate of 25%.

For more information, please contact ISG by completing the form below: