QROPS

6/5/2009

 
QROPS is a pension scheme which has been created outside of the UK and which is recognised by Her Majesty's Revenue and Customs as meeting certain rules, standards and conditions. A pension scheme having the QROPS approval allows individuals with a UK pension who now resides outside of the UK, or is in the process or planning to leave the UK in the near future, to transfer their UK registered pension offshore to a QROPS Pension Scheme.

To read more about QROPS and the latest update & developments follow this link to another QROPS pension article.

A QROPS pension scheme is predominantly subject to legislation in the jurisdiction where it is based. It is important to note however, that the QROPS administrators have to adhere to HMRC regulations in respect of any member who has been non-UK resident for less than five tax years. After a member of a QROPS has been non-UK resident for over five tax years, this is where the beauty of a QROPS really comes to fruition.

 If an individual had their pension invested in a QROPS based in the Isle of Man, then Isle of Man legislation allows up to 30% of the pension fund to be taken as a lump sum. A QROPS based in Hong Kong only allows lump sum payments to be made at the discretion of the trustees and therefore such payments cannot be guaranteed.

If an individual is invested in a SIPP, then like a QROPS, it is not necessary to have to buy an annuity at the age of 75. After retirement however, and leading up to age 75, a person can go into unsecured pension whereby they can draw an income from the pension fund. However if the member dies during this time and leaves their pension to a chosen beneficiary, then that person can inherit the pension fund as a lump sum but the fund will suffer a 35% income tax charge for the privilege! This compares very unfavourably to a QROPS where a member in the same situation who has been non UK resident for over 5 years, could leave money free of tax to his or her chosen beneficiaries where say the QROPS is based in Hong Kong or Guernsey. If the QROPS was based in the Isle of Man, there would be a 7.5% tax charge on a lump sum payment or a spouse's/dependant's pension could be paid. Still preferable to a 35% income tax charge!

The situation is even more favourable for a member of a QROPS who dies after the age of 75 whilst taking an income and they have been non UK resident for over 5 years. In this situation there would be no tax charge if the QROPS was based in Hong Kong or Guernsey. If the QROPS was based in the Isle of Man, then the fund could be returned less a 7.5% tax charge or a spouse's/dependant's pension could be paid.

If the member’s money was in a UK SIPP and the member had opted to take an ASP , (Alternatively Secured Pension) after 75 years of age, then any of the funds in the ASP still remaining on the death of the member, can be pass onto dependants tax-free. However, transfers to non-dependants will suffer a taxable charge of 70%, in addition of the Inheritance Tax of 40% on amounts over £325,000 starting from the date 6 April 2009.
It is therefore clear that a QROPS can offer many additional benefits over a SIPP. However, no matter how appealing a QROPS may sound, anyone considering transferring their pension abroad should always take advice from a suitably qualified company.

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