News/Events

Good news on pension transfers [5th June 08]

I have just received an email from my chairman Colin Langton, who now resides in Spain running our office in Sotogrande. Amongst many other matters, Colin said that he was about to sit down to fill in his QROPS forms so that he can transfer his UK pension money to a Channel Islands plan. Not many people have heard of this acronym or know what it is about? Hats off to Colin for being ahead of the game!

QROPS stands for ‘Qualifying Recognised Overseas Pension Scheme’ and might sound boring but Colin believes it is the best plan to hit the pensions industry in many a year! If you are planning to move away from the UK and live overseas in the future, you should consider transferring into such a plan.

Very simply, the UK government has relaxed the requirement regarding pension transfers which means that if you have a UK registered pension scheme you can now transfer to a QROPS. Such a transfer itself does not change the basis of taxation or restrictions if you remain resident in the UK.

BUT, if you have been out of the UK for five complete tax years known as the reporting period, there is then the opportunity to subsequently transfer to a more flexible pension regime subject to any restrictions applicable within your home jurisdiction. This more flexible scheme is known as an International Scheme which might allow the policy holder a 100% commutation of the built-up pension fund. There are also some wider investment options also available including hedge funds and residential property. Even loans to the policyholder of up to 25% of the value of the assets held within the pension plan can be taken, subject to approval by the Trustee.

It should be noted that the QROPS scheme provider has to report on the assets/benefits held within the plan to the HMRC and only cease after the reporting period. To be clear, the reporting period commences from the time the policyholder leaves the UK and not from when the transfer took place.

Taxation in the country of residence is obviously critical and professional advice is required. For example, in Cyprus pension income is taxed at 5% whereas income derived from capital can be taxed at 30% so careful tax planning is a necessity.

For information purposes, there are no residency or employment conditions required to make the transfer to the QROPS and no tax charges for transferring if the client has either enhanced or primary protection or is below the life time allowance.

A word of warning though, as the costs of moving to QROPS varies enormously and some can be cleverly hidden in the small print of the conditions. As mentioned earlier, specialist advice in this area is a must so contact a qualified adviser for more information.

This article was written by Langtons - Published in the Western Morning News, Money, 5th June 2008