EXPAT RETIREMENT PLANNING

QROPS

A QROPS (Qualifying Recognised Overseas Pension Scheme) is an overseas pension scheme that meets certain requirements set by HMRC in the UK.

A QROPS or Qualifying Recognised Overseas Pension Scheme is an overseas pension scheme that is approved by Her Majesty’s Revenue and Customs (HMRC)

These schemes are designed to receive transfers of UK pension funds without triggering unauthorised payment charges or tax penalties.

Who Is Eligible For A QROPS Pension Transfer?

A QROPS may be the right solution for you in the following circumstances:

  • You're a British expat or former UK resident

  • You're a UK expat resident in a country where QROPS is available

  • You're a UK expat and have UK private or workplace pension schemes

  • You're a UK expat and intend to stay overseas long term or retire abroad

Benefits

  • Estate Planning Flexibility: QROPS provide more control over how your pension is passed on to your beneficiaries, and can remove your pension from UK Inheritance Tax (IHT) liability.

  • Flexible Access: Access your pension on your terms, with greater flexibility in how and when you draw your funds compared to many UK-based schemes.

  • Currency Control: Hold and withdraw your pension in your local currency, reducing exposure to exchange rate fluctuations and avoiding costly conversion fees.

  • Broader Investment Choice: QROPS offer access to a wider range of investment options than standard UK pensions, supporting better diversification and potentially improved returns.

  • Protection from UK Pension Reforms: Because QROPS are governed by the rules of the host country, they are less affected by future changes to UK pension legislation.

  • Pension Consolidation: Bring multiple UK pensions together into a single, easy-to-manage plan, simplifying your retirement planning and investment strategy.

Drawbacks

While QROPS can offer significant benefits for expats, there are important limitations to be aware of:

  • High Costs: QROPS arrangements involve higher setup and ongoing administration fees.

  • Reduced Consumer Protection: There may be limited consumer protection with the removal from the UK regulators.

  • Changing Regulations: QROPS are subject to ongoing changes in both UK and local tax laws, which can impact the long-term benefits of your transfer.

  • Potential for Additional Tax: If you leave your country of residence, you could lose your exempt status, triggering the 25% Overseas Transfer Charge (OTC) or other tax consequences.

What Are The Tax Implications Of A QROPS Pension Transfer?

​The Overseas Transfer Charge (OTC) is a tax of 25% applied to certain transfers from UK pension schemes to Qualifying Recognised Overseas Pension Schemes (QROPS). Introduced on 9 March 2017, this charge aims to prevent tax avoidance when pension funds are moved abroad.

Understanding the Overseas Transfer Charge (OTC)

When Does the 25% OTC Apply?

The charge is triggered in either of the following cases:

  • Transfers exceeding the Overseas Transfer Allowance (OTA) Any amount above £1,073,100 (unless protected) transferred to a QROPS may be subject to the 25% charge.

  • Non-excluded transfers requested on or after 9 March 2017. If the transfer does not meet one of the exemption conditions outlined below, the OTC applies.

Excluded Transfers (No 25% Charge)

A QROPS transfer is exempt from the Overseas Transfer Charge if, at the time of the transfer at least one of the following conditions is met:

Same Country Rule: You live in the same country or territory where the QROPS is established.

Employment-Based Scheme: The QROPS is an occupational or overseas public service pension scheme, and you are transferring into it as an employee.

International Organisation Scheme: The QROPS is set up by an international organisation to provide retirement benefits for its current or former employees.

Key Takeaway

A QROPS transfer may be the right choice if you’re a UK expat planning to retire abroad, want to consolidate your UK pensions, gain currency flexibility, and reduce exposure to UK tax and regulatory changes. However, it’s essential to weigh the benefits against potential costs, tax risks, and complex compliance rules.

Because of the complexities involved, it’s essential to work with a regulated, independent, cross-border financial adviser who can ensure your pension strategy aligns with your unique circumstances and long-term goals.

If you're considering a QROPS, book a consultation today to receive tailored, expert advice on how to maximise your pension benefits while living abroad.

FAQs

  • Estate Planning: QROPS allows for greater flexibility in passing your pension to your beneficiaries, removing your pension from UK IHT

    Flexible Access: QROPS offer greater flexibility in how and when you access your pension funds.

    Currency Choice: Invest and withdraw funds in your local currency, helping you avoid exchange rate risks and conversion fees.

    Wider Investment Options: Enjoy access to a broader range of investments than typical UK pensions, allowing better portfolio diversification.

    Insulation from UK Changes: UK pension rule changes have less impact on QROPS

    Pension consolidation: Simplify your investment strategy by bringing all your pensions into one place.

  • Transfers to a QROPS are tested against the Overseas Transfer Allowance (OTA).

    Unless an exemption applies, any transfer exceeding this limit may be subject to a 25% Overseas Transfer Charge.

  • The Overseas Transfer Charge is a 25% tax applied to:

    • Any amount above the Overseas Transfer Allowance (£1,073,100 without protection) when transferring to a QROPS

    • Non-excluded transfers from UK pension schemes to a QROPS requested after 8 March 2017

    Excluded Transfers

    A QROPS transfer is excluded from the 25% charge if, at the time of transfer, at least one of the following conditions is met:

    • The member resides in the same country or territory where the QROPS is established

    • The QROPS is an occupational or overseas public service pension scheme, and the member is joining as an employee

    • The QROPS is established by an international organisation to provide benefits for current or former employees

  • Yes, an International SIPP is a good alternative to a QROPS. Whilst it doesn't remove your pension from the UK, it can provide a number of benefits that a standard UK pension does not.

  • Determining if a QROPS is suitable depends on your personal circumstances, including your country of residence, long-term plans, pension size, and tax position. With UK pension legislation changing regularly, it's best to speak to a regulated cross-border specialist to determine whether it can be a suitable option. The penalties for transferring to a QROPS are not suitable, are severe and irreversible.

  • Our QROPS Transfer Process

    We start with an initial discovery call to understand your current financial position, goals, and specific requirements. From there, we conduct a comprehensive analysis of your existing assets and priorities.

    Step 1: Comprehensive Financial Review

    We assess your situation thoroughly to identify your financial goals and determine the most appropriate QROPS solution. This includes reviewing your existing pension assets and priorities.

    Step 2: Tailored Recommendations

    Based on our analysis, we provide a detailed Wealth Report outlining our recommendations. This report will include the most suitable QROPS provider for your circumstances, along with a customised investment strategy tailored to your goals.

    Step 3: Client Onboarding and Documentation

    Once you’re comfortable with our recommendations, we’ll guide you through the necessary client onboarding documentation. Our team will then coordinate with the chosen QROPS provider to initiate the setup and transfer process.

    Step 4: Transfer Process Initiation

    The chosen QROPS provider will liaise with your existing pension scheme providers to initiate the transfer. We’ll assist you in completing any required documentation along the way.

    Once your current pension scheme satisfies their checks, the transfer will be completed, and we will continue to support you throughout the process to ensure everything is in order.

  • If you move your UK pension to a QROPS and then return to the UK within five years, any withdrawals you made while living abroad could be subject to UK taxes. This applies to UK expats who transferred their pensions to a QROPS before 6 April 2017.

    To prevent UK tax on withdrawals made while non-resident, you must have lived outside the UK for at least five consecutive tax years before accessing your pension benefits.

  • After 6 April 2017, the five-year rule was extended to ten years. Your QROPS provider is required to report any payments made from your pension for up to 10 years after the transfer. They must also report any unauthorised withdrawals, such as accessing your funds before the age of 55.

  • The Overseas Transfer Allowance is the maximum you can transfer from a UK pension to a QROPS without paying the 25% Overseas Transfer Charge. The standard limit is £1,073,100, though it may be higher if you have Lifetime Allowance protection.

  • The Lump Sum Allowance (LSA) is the maximum amount of pension benefits you can take as tax-free lump sums from UK-registered pension schemes.

    As of April 2024, the standard LSA is £268,275, which is 25% of the former Lifetime Allowance (£1,073,100). Amounts above this may be taxed unless you have Lifetime Allowance protection that allows for a higher tax-free limit.

  • The Lump Sum and Death Benefit Allowance (LSDBA) is the total amount of pension benefits that can be paid out tax-free during your lifetime and on death before age 75.

    As of April 2024, the standard LSDBA is £1,073,100. It includes:

    • Tax-free lump sums you take during your lifetime (e.g. pension commencement lump sums)

    • Tax-free death benefits paid to your beneficiaries if you die before age 75

    If the total amount paid exceeds this allowance, the excess may be taxed when benefits are taken or passed on.

  • You can withdraw from your QROPS from age 55.

After all, it’s your wealth, not ours.