To QROPS or not to QROPS in France

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25.06.24
QROPS in France

Have you heard about the benefits of QROPS in France? You’ve come to the end of your working life and chosen to make the most of your retirement years by spending them in France.  You’ve left the UK, but what about your savings, investments and pensions?  Have you left them behind or moved them out too? 

Obviously, much depends on your plans and type of pension. However, if you intend to live in France indefinitely, does it make sense to leave such a valuable asset as a pension fund behind, exposed to UK taxes and any future negative reforms?  Or is it time to find a new tax-efficient home for your retirement savings, one that provides advantages for French residents?

French taxation

Income from UK private pension funds and Qualifying Recognised Overseas Pensions Schemes (QROPS) are taxed at the scale rates of income tax in France plus 9.1% social charges, though Form S1 holders are exempt from the latter.  If you take the alternative route of reinvesting pension funds into an assurance-vie policy, you could benefit from tax advantages in France.

You also need to consider what happens on your death, as here there could be double taxation.  When your family inherit your UK pension, in many cases they’ll pay UK income tax on the receipt as well as French succession tax – they’ll need to pay both.  Spouses are exempt from succession tax and children receive an allowance, but distant and non-relatives (including stepchildren) could find most of their inheritance goes to the taxman.

Regulated pensions advice

Another key issue is professional advice. UK pensions are notoriously complicated at the best of times and the frequent changes make it a bigger minefield – just look at the latest allowances the government introduced.  Specialist, UK-regulated pensions advice is essential to protect your retirement savings but, once you’ve left the UK, where do you get that advice from?

UK financial advisers and pension companies lost their ‘passporting’ rights when the UK left the EU, so your UK pensions broker or company is no longer able to advise you as a resident of France. If they do, you may not be covered by the professional indemnity (PI) insurance.  There are relatively few financial advisory companies that can provide regulated advice in both the UK and France.

Ever-changing UK pensions legislation

For those with larger pension savings, the last two years have seen significant changes.    From April 2023 the lifetime allowance (LTA) charge was reduced to 0%, then fully abolished from April 2024.  A welcome move, but now three new allowances have come into effect, impacting those with pensions funds over the old LTA limit of £1,073,100 (unless you have lifetime allowance protection in place).

The Lump Sum Allowance (LSA) limits how much tax-free cash you can take from your pension arrangements, while the Lump Sum and Death Benefit Allowance (LSDBA) would impact your beneficiaries. For residents of France, the Overseas Transfer Allowance (OTA) imposes a 25% charge when UK registered pension funds exceeding your available OTA (maximum £1,073,100, higher if you have pension protections) are transferred out of the UK (similar to the old lifetime allowance).  If your pension funds don’t yet breach this limit but investment growth could push you over it, you’ll want to consider your options now.

One feature of the LTA replacement law is that, for the next two years, HM Revenue & Customs can quickly amend the legislation without going through parliament.  It has already amended aspects of the law affecting overseas transfers but overcorrected in the process and will now rectify the situation again.

The UK has a general election shortly, and a change of government would likely lead to more pension reforms.   The Labour Party has said it would bring back the old lifetime allowance… and could the limit be reduced if they do?

There is around £3 trillion sitting in UK private pensions, making it a target for any government which needs to raise funds to fulfil its election promises, and non-UK residents seem an obvious demographic to focus on. Private pensions enjoyed tax relief during the accumulation period as well as tax-free growth, so why let those monies leave the UK tax-free?  We already have the Overseas Transfer Charge for transfers to non-EU QROPS (unless covered by an exclusion) and now the Overseas Transfer Allowance, will they look at pension income next? They could, for example, remove the personal allowance for non-residents.

QROPS in France

Why leave your pension in the UK with all this uncertainty? It’s certainly worth exploring your options to establish if your pension funds can be transferred out of the UK or not, and whether doing so actually suits your circumstances, objectives and future plans. Many British expatriates have found that moving their UK pension to a QROPS has proved very beneficial.

Registered QROPS must meet HMRC rules to receive transfers from UK-registered pension funds, adding protection.  The benefits of moving your pension into an EU-based QROPS include:

  • Shelter from further UK taxes (if your funds breach the overseas transfer allowance, you may have to pay tax at that point).
    
    
  • Protection from future UK regulation changes.
    
    
  • Flexible access.
    
    
  • More investment choice and diversification.
    
    
  • Multi-currency options – protect your pension income from adverse exchange rates.
    
    
  • Estate planning flexibility.

The Assurance-vie option

QROPS is not your only option for moving pension capital out of the UK.  Assurance-vie is a popular savings arrangement in France, if you can cash in your pension (potentially with just 7.5% French tax on the lump sum in some circumstances).  This specialised form of life assurance allows you to hold a wide range of investment assets and is highly tax efficient for residents of France, especially if you hold your policy for over eight years.   It can also offer estate planning benefits and succession tax savings for your heirs.

There are various assurance-vie policies available, based in different countries, and the tax benefits vary, so do careful research first.

Pensions and tax planning advice

It is possible that neither QROPS nor assurance-vie is suitable for you – some people are better advised to leave their pension in the UK.  Take account of your circumstances, other assets, risk tolerance and objectives, and weigh up the pros and cons of all your options to establish the most suitable for you and your family.

Specialist, personalised advice really is key here, and Blevins Franks is a regulated firm that provides integrated advice covering UK pensions, the underlying investments, and both UK and French taxation and estate planning.  You’ve worked hard to build up your pension; now, find the best solution to protect and make the most of it.

Contact us today.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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