As you may know, there have been some major changes to UK pension legislation recently along with additions and amendments to the pension transfer rules by the Inland Revenue, HRMC (Her Majesty's Revenue and Customs) in the United Kingdom. UK pensions now allow full pension flexibility, also known as flexi-access drawdown or flexible drawdown, meaning you are allowed to cash in your pension in the UK at retirement age, although you will pay your highest marginal rate of income tax on it. If you cash in your pension in the UK, the whole pension pot will be subject to inheritance tax at 40% upon death in the UK and you will also pay your highest rate of income tax which is 20% - 45%. Furthermore, you will be put on an “emergency tax code” if you cash in your entire pension pot, which means you will likely be put onto the higher rate of tax and you will have to wait until the next tax year to claim your tax back.
However, if you are a British expat, you can avoid inheritance tax, avoid any tax on death and avoid income tax in the UK through transferring a pension scheme into a Recognised Overseas Pension Scheme (ROPS). These were formerly known as QROPS (Qualifying Recognised Overseas Pension Schemes) which came into force more than nine years ago, on April 6th 2006, but more recently known simply as ROPS.
The new rules have affected most UK pension schemes including final salary or defined benefit (DC) pension schemes and defined contribution (DC) pension schemes. People who work in the UK and leave their pension schemes in the UK are often taxed on their pensions in the UK, even if they work abroad. A ROPS is a solution to transfer a pension out of the UK and into an offshore pension scheme administered by offshore trustees, normally based in tax neutral or advantageous pension schemes in Europe, New Zealand or Asia to improve tax efficiency and allows you to transfer a pension into the currency of your tax residence in retirement.
For example, a person who moves to retire in Spain, may wish to transfer their UK pension to a tax efficient jurisdiction in Europe and transfer their pension into EUR, so that currency fluctuations doesn't effect pension income and makes sure that the amount of tax paid is optimised; this often means paying less income tax than in the UK and almost always means zero tax on death or paying a negligible amount, even if returning to the UK at a later date.
So, how are UK pensions taxed abroad and how do withdrawals work? UK pensions are often taxed in the UK if no Double Taxation Agreement exists between the country where you draw your pension in retirement and the UK. If a DTA does exist, the pension may be taxed in the UK or may be taxed in the country you live in at retirement.
Often, a private pension or company pension is taxed in the UK, which means income tax of up to 45% and tax on death of up to 45% after age 75. If you opt for full flexible drawdown and cash your pension in at 55, a pension is subject to inheritance tax of up to 40%.
Many people have been looking for pension transfer info ever since the legislative changes took place. Nowadays, every UK individual who leaves his UK pension scheme invested within the country, has a right to access the full pension at age 55, but you pay income tax on any retirement benefits you take. This applies to every UK citizen.
Thanks to the new pension freedoms, you can cash the whole lot in, but you would pay UK income taxes and be subject to UK IHT. A ROPS is a solution to reduce tax, get a pension into the currency of your country at retirement and increase investment flexibility.
You may also be able to access your UK pension in full if you have a terminal illness like cancer. You can move your pension to a ROPS in Malta and reduce your income tax bill in many circumstances and cash in your pension at age 55. However, you must retire abroad to reap the benefits of a ROPS.
This is where the new rules and changes gave birth to a new investment vehicle. It is called a ROPS, or Recognised Overseas Pension Scheme, formerly known as QROPS. This investment vehicle allows any existing UK registered pension schemes to be transferred into a ROPS. A ROPS is intended only for those who intend to retire abroad permanently. You can move into a ROPS before you move overseas, but if you take any benefits of a ROPS whilst still in the UK, the ROPS would fall under UK taxation rules.
When a country changes its legislation system and there are other pension rule changes, there are always loopholes in the pension laws which can be abused by expats and wayward advisers. In the past, many expats have tried to cash-in their pension schemes and HMRC have tried to fine them.
A ROPS, however, if it follows HMRC rules, is the proper way to improve tax efficiency in retirement. A ROPS was created to allow freedom of movement of capital, in this case pensions, around Europe. If you are moving jobs and moving abroad, you should be allowed to move your pension scheme. Since UK pension rules and ROPS were written before Brexit, the rules will still stand. Brexit will have little or no effect on ROPS and QROPS schemes.
Nowadays, almost everyone accepts the fact that allowing people to move their pension savings to countries they choose should be a common practice and a ROPS is protected by EU law under the Schengen Agreement. However, the UK is strict when it comes to pension fund transfer options and you need to talk to a ROPS specialist who can find the optimal solution for you based on your unique circumstances. UK pension transfersm, QROPS and ROPS is a complex area, as you need to understand the different offshore pension rules in the various jurisdictions such as HK, Malta, NZ, Gibraltar and the Isle of Man, as well as understanding all the various double taxation treaties between these jurisdictions and the country where you will draw your pension pot at retirement.
A ROPS adviser will ensure that you get the right solution for your pension scheme as a British citizen who is tax resident abroad. A ROPS will protect your pension from currency swings and make sure your pension is in a tax efficient environment. A ROPS allows may allow you to drastically reduce your tax burden in many circumstances. Ask a ROPS adviser for a Pension Transfer Value Analysis (TVAS) report.
Therefore, the question 'how to transfer my pension' abroad asked by pensions has many answers and only a ROPS specialist can find the optimal strategy.
Seeking a qualified ROPS adviser is crucial and our experienced offshore financial advisers will help fill out the pension transfer form on your behalf after asking the question, “how to qualify for ROPS”. We will ask you to fill out a fact find, a risk questionnaire and will compile a TVAS report for final salary pension transfers prepared by UK FCA regulated advisers.
Please ask us for our pension transfer guide. First, check if you qualify for a ROPS transfer. The trustees we use have all the necessary ROPS qualifications and our registered and can be checked on HMRC's ROPS list.
In order to qualify as a ROPS, the trustees must abide by HMRC’s QROPS (Qualifying Recognised Overseas Pension Scheme) legislation. Moreover, to qualify as a QROPS / ROPS, your pension must be officially recognised by HMRC (as it is not possible to register an overseas scheme) and must also follow a set of strict reporting duties. The important thing here is that the QROPS / ROPS must be registered as a UK pension scheme and also be recognised for tax purposes its country of registration abroad.
Any individual who is residing anywhere else in the world, regardless of their residence, can transfer their UK registered pension scheme(s) to a QROPS / ROPS, which will pay retirement benefits to an individual abroad.
QROPS must report to HMRC every year for 10 years after the transfer takes place. Fortunately, this reporting is done by the ROPS trustees and clients don’t need to do it.
ROPS members who are tax resident abroad can take retirement benefits under ROPS rules rather than UK rules. However, they must be abroad for five full tax years to avoid any tax on death in the UK.
If you move to a ROPS, you avoid UK IHT, any taxes on death in the UK and UK income taxes as long as you remain tax resident abroad. You usually only pay income tax in your country of residence, although the income tax may also be taken at source in the jurisdiction of a QROPS. Ask your ROPS adviser to check the DTA's in place with the ROPS jurisdiction and local tax rules in your country of residence.
In most cases in Europe, for example, if you move to a Malta ROPS, your pension will be taxed on income at retirement only in your country of residence, e.g. Spain. It avoids UK IHT and any tax on death.
30% tax-free cash lump sum can be taken and 70% must provide an income for life if the pension fund is not in the European Economic Area (EEA), e.g. this applies for ROPS pension schemes in New Zealand and Hong Kong.
If the ROPS is in the EEA, full pension flexibility and drawdown is allowed as long as this is allowed under local pension legislation rules, e.g. it is allowed in Malta.You cannot draw retirement benefits before the UK retirement age, which is currently 55 years old.
You can invest in any fund platform or offshore wrapper to protect your portfolioYou can invest freely in bonds, shares, mutual funds, OEIC’s, unit trusts or sit your pension in cash. You can even buy precious metal funds such as silver or gold. You can hold your pension in any currency of your choice such as GBP, EUR or USD.
A ROPS can own commercial real estate, but not residential real estate.
A ROPS cannot hold any residential real estate if you intend to live in it.
In its heart, a ROPS is a principled, qualified, approved and registered scheme. The truth is a ROPS is simply a way for the UK authorities to allow the transfer of pension funds out of the UK to an overseas scheme.
With this in mind, we can definitely conclude that a ROPS is a registered legal pension scheme held offshore. Our ROPS advisers will help fill in the transfer pension form for you if you are eligible.
Most UK individuals who are living abroad and many foreigners who have built up a pension in the UK are eligible to transfer. ROPS advisers have clients in many legal jurisdictions such as Spain, Portugal, France, New Zealand, Hong Kong, iTaiwan, Japan, Canada, worldwide.
A QROPS / ROPS is a registered pension scheme offshore.
In the end, there is a whole variety of ROPS schemes offering tremendous advantages to expats living overseas, but you must seek the advice of a ROPS specialist.
Not only will you improve your currency position by transferring your pension into the currency of your new country in retirement, but you can also opt for a self directed ROPS, as well as move your pension to a more tax efficient jurisdiction if available and appropriate.
Despite the fact that ROPS / QROPS may not give you instant, full and unrestricted access to the funds that you would get in the UK, the offshore pension trust should protect your family from inheritance tax and any tax on death that your pension would face in the UK.
A ROPS is considered a great option for transferring your pension due to the freedom of currency and investment choice allowed. That's why many Brits abroad are opting for a ROPS when choosing retirement overseas.