QROPS – The New Pension Regime
QROPS – As from the 6th April 2011 the UK Government announced further amendments to the UK pension tax legislation and put forward additional guidelines. At Guardian Wealth Management we have been tracking the government’s latest thinking in order to establish how it would impact on our international clients who are considering transferring their existing UK pension to a QROPS or for those who have already done so.
New Anti Avoidance Provision
The main impact for those clients who hold a QROPS or planning to hold a QROPS comes once an individual takes benefits. If you take benefits and have been away from the UK less than five years and prior to that you had spent at least 4 out of the last 7 tax years as a UK resident then you will be liable to UK income tax on the benefits you have taken whilst overseas.
The anti avoidance provision goes even further to state that even if you have paid income tax in the country of your retirement which has a double taxation treatment with the UK, the UK will still tax you again.
As Guardian Wealth Management has always advocated; when making financial decisions it is all about planning. QROPS is designed for people who have the intention of permanently living away from the UK. If that is your case then a QROPS could be right for you.
If not then there are often ways to make improvements to your existing position, let’s not forget the advantages of a SIPP.
QROPS or a SIPP, speak to one of our advisers, set out your plans and where you intend to live and Guardian Wealth Management will be able to help you make the informed choice.
QROPS Case Study
An example of how the anti avoidance provision would apply is shown here;
Charlotte is 61 years of age and has lived in Italy for 4 years. Prior to that she has always lived in the UK. Charlotte transferred her UK pension to a QROPS on leaving the UK and has been drawing an income from the QROPS. She pays tax on her income in Italy at 27%.
Charlotte’s sister who lives in the UK has been involved in an accident and so Charlotte has agreed to return to the UK in order to assist her sister for the next year or so.
Charlotte’s QROPS position is now this:
There has been less than 5 years between leaving the UK and returning.
She has taken pension income.
She was tax resident in the UK during the past 7 years prior to leaving the UK.
Her liability for income tax in the UK is on 90% of the total income amount taken from her QROPS.
Although she paid income tax in Italy this cannot be offset against her UK tax.
If she had been out of the UK for 5 tax years then she would not have the UK income tax liability.
There are still many good reasons for expats to consider a QROPS but seeking, clear professional independent advice is paramount.