S i m p l i f y i n g Q R O P S QROPS The benefits For professional advisor use only Page 1 of 6 What is a QROPS? A Qualifying Recognised Offshore Pension Scheme is an offshore pension scheme recognised by HMRC, designed for transfers out of a UK pension. How did QROPS come about? QROPS came into existence from 6th April 2006 as a result of major UK pension legislation changes. They have been updated by a number of changes to legislation since that time. Previously a transfer out of a UK pension scheme could only take place if the UK had a reciprocal arrangement with the country to which the member was emigrating. This could only be done with the prior approval of HMRC. QROPS have brought pensions into line with other UK investment vehicles such as Offshore Bonds and OEICS, whereby the UK tax liability falls away after a period of time living overseas. The QROPS legislation has been driven by EU portability rules, so that pensions can now be transferred across borders very much like people, goods and services. Who could QROPS be suitable for? UK nationals with a UK pension who are about to emigrate or have already emigrated from the UK. Wealthy UK nationals with a UK pension who spend less than 90 days per annum in the UK and qualify as being non UK resident on this basis. Care does need to be taken that a client does not fall foul of any other residency requirements. Page 1 of 4 Foreign nationals and UK non domiciled clients with a UK pension who have worked in the UK, and who are repatriating back to their home country overseas. UK nationals with UK pension funds close to breaching the Lifetime Allowance limit. These clients can transfer to QROPS to trigger a ‘Benefit Crystallisation Event’ (BCE). Under current rules, once the pension funds have been transferred to QROPS they are able to grow without further assessment with regard to Lifetime Allowance limits (see our sales aid, Lifetime Allowance Planning with QROPS).
Transcript
Simplifying QROPS
QROPS The benefits For professional advisor use only
Page 1 of 6
What is a QROPS?A Qualifying Recognised Offshore Pension Scheme is an offshore pension scheme recognised by HMRC, designed for transfers out of a UK pension.
How did QROPS come about?QROPS came into existence from 6th April 2006 as a result of major UK pension legislation changes. They have been updated by a number of changes to legislation since that time.
Previously a transfer out of a UK pension scheme could only take place if the UK had a reciprocal arrangement with the country to which the member was emigrating. This could only be done with the prior approval of HMRC.
QROPS have brought pensions into line with other UK investment vehicles such as Offshore Bonds and OEICS, whereby the UK tax liability falls away after a period of time living overseas.
The QROPS legislation has been driven by EU portability rules, so that pensions can now be transferred across borders very much like people, goods and services.
Who could QROPS be suitable for?
UK nationals with a UK pension who are about to emigrate or have already emigrated from the UK.
Wealthy UK nationals with a UK pension who spend less than 90 days per annum in the UK and qualify as being non UK resident on this basis. Care does need to be taken that a client does not fall foul of any other residency requirements.
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Foreign nationals and UK non domiciled clients with a UK pension who have worked in the UK, and who are repatriating back to their home country overseas.
UK nationals with UK pension funds close to breaching the Lifetime Allowance limit. These clients can transfer to QROPS to trigger a ‘Benefit Crystallisation Event’ (BCE). Under current rules, once the pension funds have been transferred to QROPS they are able to grow without further assessment with regard to Lifetime Allowance limits (see our sales aid, Lifetime Allowance Planning with QROPS).
What are the benefits of QROPS?Succession Planning
Pension funds can be passed down to family members free of UK Inheritance Tax (IHT) and scheme charges on death at any age. If a member dies whilst being a member of a QROPS (and after being non resident for 5 complete tax years) then no UK scheme charges are reportable to HMRC.
Additionally, in February 2010 legislation introduced Qualifying Non UK Pension Schemes (QNUPS). By definition a QROPS is a QNUPS and is entitled to an exemption from UK IHT.
As from April 2015 the 55% tax charge on death has been removed from UK schemes on death prior to age 75 but there will still be a tax charge on death after age 75.
Income and withdrawals
Income payments can be paid gross or with a low rate of withholding tax from some QROPS.
Where a lower tax rate applies in the new country of residence or in the absence of a suitable double taxation agreement with that country, remaining in a UK pension fund may not be suitable.
Withdrawals from a QROPS may be taxed at a lower rate than from a UK pension. Withdrawals can be declared in a variety of ways, dependent upon the jurisdiction of the QROPS. For example, withdrawals declared as annuity payments may be taxed at lower rates than income withdrawals in many EU countries.
Income from a UK pension scheme normally has a 20% tax deducted at source even if a member is non resident.
It may not always be possible to have income paid gross from a UK pension, and when it is possible it can be administratively onerous.
Access
The lump sum and income distribution will depend on the relationship between local rules and HMRC QROPS rules. Where the QROPS is not regulated, or is not based in the EU (plus some exempt countries), 70% of the fund currently has to be designated to provide an income.
HMRC issued a statement in March 2015 to say that the 70% rule was being retained temporarily. This does not apply to Malta QROPS as Malta is part of the EU, so Malta QROPS providers are liaising with the Malta Financial Services Authority (MFSA) to confirm that they will be able to allow 100% flexibility.
From 6 April 2015, full flexibility of income has been introduced to UK defined contribution schemes.
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Some UK pensions require that an annuity is purchased.
Protected rights funds are subject to certain restrictions in the UK.
UK pensions can normally only pay income in GBP.
Other Benefits
There is no requirement to buy an annuity from a QROPS at any time.
There are no income restrictions on protected rights funds in a QROPS.
A QROPS can enable a client to diversify currency away from GBP.
Multiple pensions can be consolidated into one QROPS.
QROPS can assist a member with achieving non domicile status for other assets, if pension benefits are held outside of the UK.
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Transferring a UK pension What can be transferred?:
Most UK pensions, including those in pension fund withdrawal, can transfer to a QROPS: this also applies to protected rights funds.
Where assets are illiquid or funds have exit penalties, an in specie transfer can normally be made.
What can’t be transferred:
• State pensions, annuity, and pensions in payment from final salary schemes (where a client is not being offered a transfer value)
• Transfers from funded defined benefit schemes (from April 2015)
• Transfers from other defined benefit schemes, unless advice has been given by a UK FCA regulated adviser (from April 2015).
QROPS restrictions
• All distributions from a QROPS must be reported to HMRC for the first 10 tax years in which a member is non UK resident. This includes all income, lump sum and transfer payments. This is to ensure that the scheme is subject to UK rules for this period of time. The policy aim of HMRC is to prevent members from becoming non resident for a short period of time with the sole intention of benefitting from more flexible local pension rules.
• A member must take benefits subject to UK pension age restrictions. The minimum age when benefits can be taken is currently 55.
• In some circumstances at least 70% of the fund must be used to purchase an income for life. This is unless HMRC has granted a QROPS certificate where this restriction does not apply.
• It is the duty of the pension member to report any benefit crystallisation events to HMRC outside of the standard 10 year reporting period. This is with reference to the Lifetime Allowance.
QROPS may provide a tax advantageous alternative to a UK pension scheme in appropriate circumstances for an individual with a UK pension fund who has emigrated or is intending to permanently emigrate, and for UK residents in certain circumstances.
QROPS trustee selection should take into account adherence to HMRC regulations, as well as the jurisdiction as a whole. Consideration should also be given to the benefits, rules and local tax implications that may apply.
Hansard International’s strategic partnership with The QROPS Bureau provides access to impartial technical support from a QROPS specialist, including suitability reports for your clients.
It is important that advice takes into account the relative merits of all options available to a member, and the personal circumstances of the member and their family.
Is a QROPS suitable for your client?
Simplifying QROPS
Hansard International Limited Harbour Court, Lord Street, Box 192, Douglas, Isle of Man IM99 1QL, British Isles
Regulated by the Isle of Man Insurance and Pensions Authority
HO2037O 10/07/15 Page 4 of 4
Important Notes
The information contained within this document has been produced by The QROPS Bureau, on behalf of Hansard International Limited. It has been produced for general information purposes only and does not constitute investment advice.
All Hansard International products are covered by the Life Assurance (Compensation of Policyholders) Regulations 1991. Tax consequences will depend on an individual’s circumstances and residence, and may change over time. Applicants are advised to seek independent professional advice before applying for any product or if their tax circumstances change during the contract term.
Past performance is not a guide to future performance. Unit prices can go down as well as up. Unit price performance may be affected by movements in exchange rates.
For full details of Hansard products, please refer to the product literature.
This material is intended to be for the use of professional advisors. The QROPS Bureau does not give advice directly to members of the public.
The QROPS Bureau has taken all reasonable measures to ensure that the information contained in this document is accurate based on its understanding of current legislation. The QROPS Bureau cannot accept responsibility or liability for errors in or omission from any information given and for any consequences arising.
Where local taxation information has been provided, this is based upon a generic understanding of the jurisdiction as a whole. Taxes may vary regionally due to local tax office interpretations, and tax rules may change on a regular basis. This is only a guide and it is highly recommended that you seek local specialist tax advice. Pension trustees may require specialist tax advice.
