QROPS Explained

QROPS is the acronym for Qualified Recognised Overseas Pension Scheme. Our Qrops guide is here to help explain what the pension scheme is and what it can mean for you.

What are QROPS?

QROPS are schemes into which you can transfer UK pension income. This amalgamates different pension into one place and can maximise your pension amount in a variety of ways. For example, your UK pension is no longer subject to income tax.

Real QROPS must apply to the UK government to be assessed as official schemes. HMRC publish a current register of all the approved QROPS.

Am I eligible to join a QROPS?

Typically, QROPS users have built up private or workplace UK pensions and are either foreign nationals returning to live in their home country or British expats emigrating abroad.

There are specific eligibility criteria for joining a QROPS, including:

  • You live abroad, or are planning to emigrate
  • You will not return to Britain within the next five years
  • You have personal or corporate pensions (not State Pension)
  • Investment allocation
  • You have not drawn down anything from a final salary pension
  • You haven’t bought an annuity

What are the benefits of transferring your pension to a QROPS?

Many investors appreciate the opportunity to diversify that a QROPS provides. Most people find that UK pension funds, understandably, tend to promote UK investment. A QROPS broadens your investment horizons.

Here are some more good reasons for embarking on a QROPS transfer:

  • UK Tax: HMRC collect tax on UK pension income at a minimum rate of 20%. You would not be liable to pay this in a QROPS.
  • Currency: A QROPS can pay pensions in different currencies, not just sterling, the choice is yours. Given possible exchange rate fluctuations, this is reassuring for you as a British expat.
  • Lifetime allowance: There is no Lifetime Allowance maximum in a QROPS and no Lifetime Allowance 25% tax bill if you go over the limit.
  • Access: you can access your pension when you reach 55 and, if you have been living overseas for at least five years, your lump sum goes up from 25% to 30%. You can arrange higher pension payments with a QROPS than a UK pension. As everything is in one place, it is much easier to manage your entire pension income yourself and do it all online.
  • Annuities: You don’t ever have to buy an annuity with a QROPS.
  • Investment Protection: QROPS have the potential to enable more secure investment protection against claimants or creditors than is usual. This varies depending on where your QROPS exists.
  • Freedom: Your funds can be transferred into a QROPS under the ‘in specie’ clause. This means that while you can access your funds, they are protected from tax liabilities. You are also free to invest in pretty much any ETF, mutual fund, bonds, gold or silver funds that you want.
  • Inheritance: QROPS are not governed by UK inheritance tax laws. Using a QROPS can make arrangements simpler and much quicker to organise for you and your beneficiaries. A QROPS is not part of your overall estate and therefore is not subject to UK Inheritance Tax. Your beneficiaries will therefore receive all the money you have left, if they are not UK resident. They will simply have to comply with the Inheritance Tax rules in their country of residence.

Any downsides to a QROPS?

The overseas transfer charge can be a spanner in the works for those considering a QROPS transfer. You need to weigh up all the details of your personal situation, preferably with an expert in the field.

What is the overseas transfer charge?

This is a new charge introduced by the UK government which is applicable to many QROPS transfers that were initiated on or after March 9th 2017. The charge is 25% of the total pension amount being transferred. The idea of the charge is to prevent transfers that are purely motivated by tax avoidance and recoup some of the future tax loss back into the treasury. This fee has to be paid before the transfer is completed.

Good News

You will not have to pay an overseas transfer charge if:

  • Your QROPS is in the same country in which you are resident.
  • You submitted your request for a QROPS transfer before 9th March 2017, even if it isn’t fully completed.
  • You are a tax resident in any EEA country and your QROPS is in the EEA.
  • The organisation you work for sponsors a workplace pension that is a QROPS.
  • Your previous employer has a QROPS specifically for former employees.
  • Your employer is part of an overseas public service pension scheme that is a QROPS.

Bad News

You will have to pay this overseas transfer charge if you are:

  • Sorting out a pension transfer request you started before March 9th 2017 which didn’t complete and your money is now with a different scheme to the one you initially requested.
  • Not an EEA tax resident and your QROPS is in a different country to your country of residence.
  • Unable to submit all the requested information before your transfer goes through.
  • An EEA tax resident and your QROPS is in a non EEA country.
  • Changing the circumstances of your residency status or QROPS within five years of setting it up. For example, if both you and your QROPS were in the EEA but you are now moving to a country outside the EEA.

Watch out for QROPS scammers

As with all financial dealings, there are fake advisors out there trying to make money from defrauding genuine taxpayers. Unfortunately this also applies to QROPS and you should be particularly wary if you receive any unsolicited phone calls from so-called financial advisors recommending QROPS.

There primary concern is not to give you sound, bespoke financial advice. They have trawled LinkedIn to find British expats who, from their work history, look to have some kind of UK pension. They are not necessarily regulated by the FCA if they are based abroad and their sole purpose in calling you is to secure a lucrative QROPS commission for themselves.

QROPS are not the best choice for all expats and you should not feel like you are being talked into a decision. It could cost you thousands if you do not get proper advice from a genuine financial expert.

Non residents and tax paid on UK pension income

If you are no longer living in the UK and still pay UK tax on pension income you could be entitled to tax relief. HMRC has a double taxation treaty in place with many countries worldwide and these treaties determine whether you could be owed a refund of tax paid on your UK pension income.

You can use our free non resident tax relief guide to learn more about tax and UK pension income for UK non residents.

Is a QROPS the right decision for your financial circumstances?

This is something you need to consider carefully and alongside solid expert advice. As a British expat with UK pensions, there are basically only two options regarding what to do with your pension income.

You can either continue with your UK provider or transfer everything into a QROPS. The best decision can only be found once you have thought about all the repercussions of both. QROPS certainly have potential benefits, but it depends on many factors including; the type of pension you have, your residency status and your future plans.

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