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QROPS – Why professional advice matters

Since their inception in 2006, QROPS have become an ever more popular choice among UK pension holders as an alternative to retirement planning solutions. QROPS (or Qualifying Recognised Overseas Pension Schemes) can offer a wide range of benefits to expats living outside of the UK, including enhanced tax advantages and the ability to pass on pension funds as inheritance without falling victim to high rates of tax.

As with any financial planning matter, if you’re thinking of investing in a QROPS, getting proper advice from a financial advisor is the first course of action; there is a wealth of information on the internet which can serve to educate you to some degree, but it is no substitution for advice from a qualified and experienced professional.

An independent financial advisor will look at all the options on the marketplace and give you impartial advice as to the best QROPS solution for you. They will also understand the differences between QROPS jurisdictions and what those differences will ultimately mean to you.

Things to bear in mind when considering a QROPS: the pros and cons

Some of the main benefits of taking a QROPS include the following:

  • No obligation to purchase an annuity or secure a minimum yearly income.
  • No UK tax liability.
  • Greater flexibility on investments including property, private assets, offshore funds, stocks and bonds.
  • Once you’ve been an overseas resident for over 5 years, there is no inheritance tax liability.
  • You do not have to be retired.
  • There are no standard minimum transfer thresholds (unless the specific QROPS states one).
  • Some QROPS allow you to consolidate several UK pensions into one QROPS.
  • There are many QROPS jurisdictions, giving you more choice, including Guernsey, the Isle of Man, Gibraltar and Switzerland.
  • You do not have to live in the country where your QROPS was sourced, as long as you live outside of the UK.
  • If you return to the UK you are entitled to keep your QROPS without having to transfer it back to the UK although it will be treated as a UK pension. QROPS are open to anybody.

As you can see, QROPS can provide an excellent pension choice if you fulfil the criteria. However, as with any financial planning issues, you need to make sure that you’re aware of any potential downsides so you can ensure that you’ve made a balanced decision. Some of the things to bear in mind before you go ahead and choose to invest in a QROPS are:

  • If you return to live in the UK within 5 years you may be liable to pay tax on your QROPS.
  • If you’re a US resident, you may be unable to transfer your UK pension into a QROPS due to US law.
  • You cannot transfer a UK state pension, only personal and corporate pensions are allowed.
  • It is not always beneficial to transfer a corporate pension.
  • If you have already taken a lump sum or other benefits from your UK pension, you may not be able to transfer the remainder to a QROPS.
  • If your transfer fund amount is higher than HMRC’s lifetime allowance (currently £1.8m), you may face a tax charge when you transfer your funds to a QROPS.
  • There will be fees to pay for the set-up of your QROPS and annual management charges – this depends on the QROPS; find a good financial advisor with experience of QROPS to help.
  • If you live in a different country to where your QROPS was sourced, you will be subject to the tax regime of both countries.
  • If you transfer to a scheme that isn’t recognised by HMRC, you may risk a fine.

On balance, QROPS can be a great way of making your retirement funds really work for you if you’re an expat living or working outside of the UK – but make sure you get sound advice from an independent financial advisor who can help you to weigh up the pros and cons. If you want to read more about QROPS, we recommend this QROPS guide, but make sure you get advice from a qualified professional too.

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