Understanding QROPs rules

A Qualifying Recognised Overseas Pension Scheme (QROPS) is a useful retirement option for those living, or planning to live, overseas. In their simplest form QROPS enable you to port your UK pension into an overseas scheme, which can be favourable from a tax perspective. Yet, as with all financial planning tools, there are a handful of rules which are useful to understand when considering moving your pension pot to a QROPS.

Who needs to know about my QROPS?

Transferring your pension into a registered QROPS scheme triggers a 10-year reporting requirement. During this period any unauthorised withdrawal has to be shared by your QROPS provider to the British tax authorities, HMRC. An unauthorised withdrawal is categorised as taking funds or benefits from your pension before the age of 55 years old.

What is the QROPS Five-Year Rule?

The five-year rule was introduced when QROPS were first established in 2006. It applies to the first five years of your residency status if you transferred your pension to a QROPS before 6 April 2017. Ultimately you must have been UK non-resident for five consecutive tax years ahead of retiring or beginning to draw from your QROPS.

How does this affect my pension?

Breaching these rules, such as releasing funds before age 55, means that you could face a significant tax charge of up to 40% of the funds value, plus an additional surcharge of up to 15%. This could of course have serious implications on your tax bill, and, indirectly, your income over the longer term.

People who have completed the five full tax years can draw on up to 30% of their pension as a lump sum and will not be subject to any UK Income Tax. This may however still be taxable in your country of residency.

What actions do I need to take?

It is important to work with a registered QROPS provider and seek advice ahead of any transfer so that you fully understand the rules around the use of the scheme. It will also be important to determine, before any transfer takes place, any tax you will pay on pension income or benefits in the future. This may be determined by whether a Double Taxation Agreement (DTA) exists so if you are living abroad you will also need to check the tax rules for that country and the country where your QROPS is based.

Planning to move your pension into a QROPS needs to be carefully thought through. Our experience of expatriate tax and retirement options means we can help you negotiate this complicated area of financial planning. To speak to one of our pensions experts please get in touch with your nearest office.

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