How to escape top rate tax on UK pension benefits

Forget complicated tax avoidance schemes because this one’s so simple that hundreds of UK expats can save huge amounts of tax  - and QROPS Advisor knows the scheme works because the taxman told us!

So here’s the inside information direct from HM Revenue and Customs on how to save tax on your pension benefits if you are a higher rate tax payer:

Who qualifies?

Any UK non-resident with UK pension rights who lives on the Isle of Man, Guernsey or Jersey.  Non-resident excludes anyone with dual nationality with the UK.

How do they make a tax saving?

The background is the UK and these three tax havens have negotiated new tax treaties during 2009 that mean anyone living on the islands paying UK tax at 40% and receiving UK pension benefits can apply to have their pensions paid without UK tax deducted rather than with tax deducted at 40% at source.

For Isle of Man, the option has been available since April 6, 2009, and for Jersey and Guernsey starts from April 6, 2010.

This means that expat retirees in these countries can opt to pay tax where they live instead of in the UK.

How much can they save?

From April 6, 2010, anyone earning over £150,000 loses their personal tax allowance and pays income tax at 50%.  If anyone in this position opted to take their pension gross instead of net of tax from the UK, their income tax would be:

• § Isle of Man - 18% - saving 22% taxes this year and up to 32% next
• § Jersey and Guernsey - 20% - saving between 20% and 30% income tax next year

What the taxman says

An HMRC spokesman told QROPS Advisor: “This is accurate. The UK will only exempt the pension payment from tax if the individual is resident in Jersey, Guernsey or the Isle of Man and also not resident in the UK for tax purposes, which means dual residents will not benefit.”

A QROPS is an even better tax saving solution

If you are UK non resident anywhere in the world including Jersey, Guernsey and the Isle of Man, and have UK pension rights but have not yet bought an annuity with your pension, you gain even more tax advantages by transferring your UK pension to a QROPs.

A QROPS negates any obligation to buy an annuity and allows your fund to be passed on when you die without inheritance tax problems.

A QROPS also pays benefits gross in many major currencies, so scheme members do not have to account for exchange control fluctuations.