QROPS - Why are they so specialised?

Many QROPS advice sites stress the importance of getting expert professional guidance if you are going to choose a QROPS. If UK pensions are confusing, then transferring them to one of a thousand overseas schemes in accordance with strict HMRC controls is infinitely more involved.


However, getting specialist advice is important for a number of reasons.

First, you need to consider the consequences of getting it wrong. The tax breaks offered by Qualifying Recognised Overseas Pension Schemes are only available if the scheme that receives a UK expat’s pension has been approved by HMRC. So it is not enough just to look at the HMRC QROPS list and see that other pensions in your chosen QROPS country have been given the nod – the individual scheme must have been approved. There are some recognised schemes that are not on the list because they wish to remain confidential. In this case, your QROPS adviser will have to make careful enquiries of HMRC about their tax position.

Status as a QROPS is only granted to schemes that are taxed and regulated as pensions in their own countries. Transferring your pension to an unapproved scheme may be seen as an act of evasion, and the taxman could impose a significant penalty (and backdated tax bill) to punish people who may have fallen into that trap.

The next reason to take QROPS advice only from a specialist is due to issues of residence. Whilst your place of residence may seem obvious to you, recent developments in the law mean that the guidelines offered by HMRC are not as clear cut as they might be. Once again, the consequences of getting it wrong are potentially very expensive with penalties and back tax bills a possibility.

Any good financial adviser should have an understanding of the tax efficiencies of the financial products they offer. With overseas pensions, your QROPS adviser should be able to lead and advise you about schemes from all over the world. This is essential because you need to know which jurisdictions are the most tax friendly to your circumstances, investments and aspirations.

QROPS.net have all the expertise you need. With access to and knowledge of the whole of the market, we offer approved schemes that are tax efficient.

QROPS Pension

Explaining the QROPS five-year rule

Expats can be really confused by the QROPS Pension five-year rule for offshore pension schemes – mainly because it can last for up to six years.

To make sure you understand the five-year rule, two key facts have to be considered:

1. The rule talks about tax years not calendar years


2. The rule is imposed to make a QROPS run under the same rules as a UK pension for the first five tax years after it is established

So timing, tax and finance have a lot in common with comedy, because often to get the best results, it’s all in the timing.

There are many articles on the interent giving advice about QROPS, follow this link to read more about a QROPS Pension

The best way of understanding the five-year rule is by following an example:

Kieran is 50 and wants to retire and start receiving cash from his pension
when he is 60. He lives in the UK and wants to retire to Spain.

On February 15, 2010, Kieran moves to Spain and transfers £200,000 from
his UK pension fund in to an offshore pension scheme or QROPS (Short for
Qualifying Recognised Offshore Pension Scheme).

The scheme does not have to be in Spain as long as it is not in the UK,
so Kieran considers Guernsey or the Isle of Man. Both have tax friendly regimes
but the Isle of Man allows him to draw down up to 30% of his fund as a cash lump
sum while Guernsey only allows a 25% draw down.

To comply with the five-year rule, Kieran’s tax clock starts ticking on
April 6, 2010.

During the five years, the pension provider has to tell HM Revenue and
Customs about any cash withdrawals in case they breach the scheme rules and
leave Kieran with a tax bill of up to 55% of the money he takes from the scheme.

The clock keeps ticking until April 5, 2015. This is the end of
Kieran’s fifth tax year absence from the UK. From now on, the pension pro0vider
has no obligation to inform the UK tax authorities of any cash withdrawals from
the pension scheme, providing Kieran has not taken up residence again in the UK.

If Kieran had withdrawn any cash in the five–year period, he would have breached the QROPS rules and the money would have been considered an ‘unauthorised withdrawal’ by HMRC.

Because of tax rules, HMRC could have charged Kieran up to 40% tax on the withdrawal plus a 15% surcharge for breaking the regulations.

QROPS Advice

Some advisors suggest that at the end of the five-year period, because the pension provider has no obligation to tell HMRC about cash withdrawals, then it’s OK for Kieran to make an unauthorised cash withdrawal of more than 30% of the fund total.

This is not correct. The 30% limit only applies to the Isle of Man and the level is stuck at 25% everywhere else. Even when the five-year limit has passed, drawing extra cash is an unauthorised withdrawal and can still be penalised by HMRC.

In fact, advisors claim HMRC is monitoring how the QROPS scheme is working and will delist any one who breaks the rules from the database of 1,700 providers held in the UK.

This promise has already been kept once, when all UK pension providers were barred from transferring funds to any of their counterparts in Singapore.

With an understanding of the five-year rule and how it affects withdrawing cash from a pension, anyone planning to retire overseas has a timeline to plan their date for leaving the UK and starting a QROPS.

From April 6, 2010, the minimum age limit for drawing down on a QROPS fund is 55-years-old.
Another key point to bear in mind with the five-year rule is that when the clock ticks past the deadline, a QROPS pension holder does not have to invest in an annuity with the balance of their retirement fund.

This is important because the pension fund no longer dies with the holder but can be passed on through the deceased’s estate.

A big tax incentive here is that UK inheritance tax no longer applies as the deceased is non-resident, so the estate is subject to inheritance tax regulations in the country where the deceased lived.

QROPS, country of residence and inheritance tax are all linked so it makes sense to get good advice from a QROPS specialist and an expert estate planner to make sure the most tax effective financial planning can be undertaken for the pension holder and their family.

We would advise seeking the very best advice available. The global leaders in Qrops pension transfers is QROPS.net. Search for them on the web and contact them direct to find out more about how a transfer to a QROPS Pension can benefit your situation.

Jersey QROPS

Have you ever been tempted to invest in Jersey? The Crown Dependency appears to offer the best of both worlds – the protection of the United Kingdom without its taxman hovering like a malevolent spectre over its economy.

This makes the Channel Island politically stable, but with the independence to set its own budget and (lack of) taxes.

The Jersey investment community is mature and well regulated, and the island is mostly English speaking, although other languages may be spoken in international investment houses.

Sounds good, doesn’t it? But unless you live in Jersey, you would not yet be able to transfer your UK pension into a QROPS pension there.

Qualifying Recognised Overseas Pension Schemes were set up in 2006 by the previous UK government. They allow members of UK pensions schemes to transfer their pension assets to foreign pensions, without paying any UK income tax. There are over a thousand schemes to choose from in a variety of countries.

However, at the moment Jersey QROPS pension are only open to Jersey residents. There are 125 QROPS that are currently open. With a population of just 91,000, this seems like a high take up.

The number of Jersey QROPS may be set to grow significantly if the market is opened up to non-residents, as reports from the region have suggested may be on the cards. The professional services firms are reported to be working closely with law makers on forthcoming changes to the country’s pension regulations to allow Jersey QROPS to be open to non-residents.

What will Guernsey make of the rule change? After all, as Jersey’s nearest neighbour (both geographically and politically), Guernsey offers a similar set up to what may be available from non-resident Jersey QROPS.

No doubt the new entrant into the non-resident QROPS market may shake things up among the offshore pensions community.

If you want any further information about the options open to you, contact QROPS.net for an appraisal of your circumstances. As whole of market advisers they can give you information and recommendations about schemes from all over the world.