What are QROPS?

On moving abroad many British expatriates will have left their UK pension arrangements in place. These pensions remain subject to UK pensions law. As a result, the pension income may be subject to UK income tax (20% deducted at source). Additionally, the UK investment restrictions relating to pensions would apply indefinitely and the member payment charges (up to 55%) may apply on death.

Under UK legislation introduced in 2004, effective from April 2006, expatriates or UK residents who have a demonstrable intention to move overseas may transfer the value of their UK pension rights to a non–UK pension scheme and thus potentially avoid most of the normal restrictions imposed on the pension fund if it remained in the UK. The transfer must be made to a Qualifying Recognised Overseas Pension Scheme (QROPS) that is recognised by HM Revenue & Customs (HMRC).

Do I qualify?

Whilst cases should be examined on an individual basis there are a number of basic conditions that must be fulfilled in order to transfer to a QROPS.

To gain the maximum benefits from a QROPS arrangement, the member must become non-UK tax resident and remain so for at least 5 full complete and consecutive UK tax years.

The existing UK pension scheme can be in drawdown (i.e. benefit being paid from the fund directly – an approach now referred to as “Capped Drawdown”) before transferring to a QROPS. However, there are restrictions and if the permitted Pension Commencement Lump Sum (PCLS) has been taken, no further PCLS is allowed.

UK rules impose a statutory Lifetime Allowance (‘LTA’) relating to the amount payable from UK registered pension schemes that will be treated as tax-privileged. Transferring benefits to a QROPS is known as a Benefit Crystallization Event (‘BCE’) and the value of pension rights transferred in excess of the lifetime LTA will be subject to UK tax.

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