Hello QROPS, goodbye taxman?

Whilst there is more to the decision to get a QROPS than tax, tax is usually the issue that gets people looking at foreign schemes in the first place. So how does the QROPS/tax relationship work, and what does it mean for investors?

Qualifying Recognised Overseas Pension Schemes (QROPS) have been available since 2006, and are foreign schemes that members of UK pensions can transfer their funds into without attracting any UK income tax. There is obviously a catch: the investor has to be resident outside of the United Kingdom for at least five years for the tax exemption to hold.

Five years is an important time span for another reason. During that time, HMRC will receive reports of what your new scheme is up to, including transfers in and out. The taxman will cease to check up on you after that first five years. So does that mean that you will have a tax free pension?

The answer is…possibly. QROPS must be taxed and regulated as pensions in their own countries, which means that you are free to choose a QROPS hosting country that treats pensions favourably.

Offshore destinations like Guernsey typically treat pensions very favourably indeed, and investors can find themselves with no Guernsey tax to pay.

However, this is not the whole story, because the investor will have to account for tax on withdrawals on their pension in the country where they live. This is an issue that well advised expats take into account when choosing their retirement destination.

While the level of tax you pay can make all the difference to a comfortable retirement, there are often other factors that come into play when you choose a QROPS. For instance, you may wish to have early access to a lump sum, or have a particular estate planning scheme in mind. In this case, it may be that the lowest tax solution may not be your preferred QROPS.

For more information, contact QROPS Adviser, as we have years of experience of helping investors find the right QROPS solution for their retirement aspirations.