What is QROPS – Qualifying Recognised Overseas Pension
Pension is a boring subject to most, unless you’re about to retire. But since 2006, there’s a buzz surrounding UK pension, an excitement generated by the coming of QROPS. So what is QROPS and why should you care?
A QROPS is a Qualifying Recognised Overseas Pension Scheme that is recognized by HMRC. The benefits it provides to non-UK residents with UK pension schemes are huge.
Prior to April 2006, it was a struggle for British expatriates and UK residents already living overseas to transfer their UK pension schemes without paying tax on transfer. With the accessibility issue, they mostly leave their pensions in the UK, sometimes forgotten. QROPS changed that. British expatriates can now freely move money from their UK pension plans to QROPS and enjoy the benefits that come with it.
One of the many benefits of QROPS is the absence of liability to UK tax on pension income. Once the pension is transferred to QROPS, pension scheme is taxable only in the country of residence. Tax on pension could be near zero depending on where your QROPS reside. Without QROPS and if you’re residing in a country with no double tax treaty with the UK, you may be subjected to a higher tax rate than the highest tax rate in your country of residence.
Another benefit is that you are not required to purchase annuity or alternative secured pension under QROPS. British regulations presently allow you to defer to take pension up to age 75. Beyond this, you’re required to buy annuity or secured pension plan. QROPS allows you to defer drawing your pension beyond age 75.
Money in QROPS is also free from UK inheritance taxes. The present pension legislation restricts your ability to leave pension to your heir upon death. The inheritance taxation could be as high as 82% of the fund value, including liability to an authorized payment charge and other surcharges. Transferring to QROPS is a great incentive on estate planning.
Furthermore, you receive your pension payments in the currency you are using in your overseas home under QROPS. It saves you having to experience currency depreciation when converting British pounds to your current currency.
Who are allowed to apply for QROPS? Presently, British citizens living overseas for an extended period of time can apply for QROPS. Citizens of other countries who hold UK pensions are also qualified. These are individuals who have worked in UK but remained citizens of other countries. However, American citizens who hold UK pensions cannot use the QROPS program at present.
While the advantages of QROPS are many, there are various other factors for you to consider before choosing a QROPS and it’s not always right for everyone. So we always recommend speaking to one of our qualified professional advisers before taking the plunge on QROPS no matter how attractive it is.