Whenever you take any wealth management decisions, whether it?s investment, tax planning or pensions, they should be based on your personal circumstances and objectives. If you?ve moved abroad, o
Whenever you take any wealth management decisions, whether it?s investment, tax planning or pensions, they should be based on your personal circumstances and objectives. If you?ve moved abroad, or are planning to do so, we recommend that you review your wealth management arrangements to make sure they are suitable for your position as a tax resident in your country and that they are the most effective they can be.
If you?ve moved from the UK your currency situation has obviously changed. You may now have different requirements for income and growth, and your tax planning definitely needs to be reviewed since your income and assets are now taxed under a different tax regime. You should also consider what tax planning opportunities your new country or your expatriate status has to offer.
While in the past UK pensions remained under the UK rules even if you had permanently moved overseas, this has changed since the introduction of QROPS in 2006.
Qualifying Recognised Overseas Pension Schemes (QROPS) are offshore pension schemes which HM Revenue & Customs allows UK pensions to be transferred into. The provider must meet a number of HMRC rules relating to how and when benefits can be taken and while they must comply with HMRC reporting requirements, this is only for the first five complete UK tax years.
A QROPS can help you structure your pension funds to suit your expatriate status.
Unlike UK pension schemes, the assets held within a QROPS and the income paid out can be in any major currency. This is a significant benefit for British expatriates living in the Eurozone as they can match their pension income to the currency they are spending and therefore remove both exchange rate and exchange costs issues.
Many funds allow you to change the currency after the fund is set up so, for example, you could set up the fund in Sterling and change to Euros at a later date. If in the future you return to the UK you can convert back to Sterling.
Investment and income
When it comes to setting up your pension fund for your income and capital growth objectives, a QROPS may provide greater discretion over investment choice compared to that of UK approved pension schemes. QROPS provide considerable flexibility to invest in a wide variety of diversified funds such as equities, bonds and real estate, as well as guaranteed investments to lower investment risk.
There is no requirement to buy an annuity with a QROPS (though you can do so if you wish), so you can leave your pension fund invested as long as you like.
QROPS also provide ability to vary your pension income (within limits) around your lifestyle and financial requirements.
If you have not yet taken your pension commencement lump sum you can still do so after you have transferred into a QROPS, though typically 70% of the fund must be used to provide an income for life.
If you have more than one pension fund you can consolidate them all into one QROPS. This makes it simpler for you to manage the investment assets and could also potentially reduce costs.
A QROPS can provide significant tax benefits. It is outside of UK PAYE and while income will be taxed in your country of residence with professional advice you can often set your QROPS up to provide various tax savings. This means you have more income to spend.
If you have been non-UK resident for the five complete and consecutive UK tax years leading up to your death, your fund is exempt from all UK taxes on death. From the 6th April 2011 the 82% tax on income drawdown for those over 75 years was abolished, but at the same time the tax rate on those under 75 increased from 35% to 55%. A QROPS can therefore help you leave your heirs a much larger inheritance when compared to UK schemes.
Once you are in a QROPS, there will be no further ?benefit crystallisation events? that occur so your fund can grow without limit. As a rule there will be no further UK tax charges arising; however certain holdings within a QROPS may still expose you to UK tax charges.
QROPS also avoid succession laws.
All things considered, QROPS can be a very attractive wealth management and tax planning opportunity for British expatriates.
While many private pensions can be transferred you cannot do so if you have already purchased an annuity or if you have begun taking benefits from a final salary scheme. UK state pensions also do not qualify.
You should always seek professional advice from a firm which is authorised to conduct UK pensions business, such as Blevins Franks Financial Management Limited, to ensure that a QROPS would be appropriate for your pension funds and your objectives and for advice on selecting which QROPS to use. We will also explain exactly what benefits you and your family will receive.
Blevins Franks Financial Management Limited is authorised and regulated by the UK Financial Services Authority for the conduct of investment and pension business.
By David Franks, Chief Executive, Blevins Franks
11th January 2011, updated 9th June 2011