QROPS/QNUPS FAQs

A Qualifying Recognised Overseas Pension Scheme, or QROPS, is an overseas pension scheme that meets certain requirements set by Her Majesty’s Revenue and Customs (HMRC).

The biggest advantage of transferring a UK pension scheme to a QROPS is that it is no longer within the UK tax net.

If an individual is living outside the UK, or is thinking of moving overseas in the future, it makes sense that their pension can also leave the UK and move with them.

A QROPS allows an individual to transfer their pension out of the UK and, by doing so, tax savings can be made.

With a UK pension scheme when income is taken it is taxed at up to 45% and this may be deducted at source even if the member is non-UK resident.

Although it is possible for the income to be paid gross, the member will have to prove to HMRC that they are paying tax elsewhere, the reason being that HMRC want to ensure that tax is being paid somewhere.

Once the pension scheme is transferred to a QROPS it may be possible for the income to be paid gross depending on the local tax rate or the existence of a double taxation agreement.

In some circumstances there may be no tax on pension income depending on the country of residence of the member and the jurisdiction in which the QROPS is held.

At present there is a tax on death once a UK pension scheme member has begun to take benefits. This is currently set at 55% and means that beneficiaries will only receive 45% of the remaining fund.

This tax replaced the need to buy an annuity once the age of 75 was reached.

With a QROPS, after five years non-UK residency, tax on death will no longer apply and beneciaries may receive 100% of the remaining fund.

QROPS are exempt from Inheritance Tax (IHT) in the same way as UK pension schemes.

The Isle of Man is a safe, well-regulated jurisdiction whose proximity to the UK and an increasing number of taxation agreements make it a favourable jurisdiction for UK expats who are planning to transfer their UK pension fund to a QROPS.

The Isle of Man is not an EU member but it is on the G20 white list and has achieved recognition for a proven record of compliance with international standards of tax co-operation. It is also the only oshore jurisdiction with a dedicated pension regulator.

In the Isle of Man, the amount that can be drawn from a pension is calculated and quantied by an actuary, which makes payments much more flexible.

The Isle of Man is a secure jurisdiction for UK pensions to be transferred to in order to be held in a QROPS until benets are to be taken and then to be transferred elsewhere to a more efficient QROPS jurisdiction.

The Isle of Man government has made it clear that it will maintain close contact with HMRC, as it is adamant that it not only wants to keep its reputation for strong regulation of offshore nancial products but it also wants to extend it.

The Isle of Man QROPS offer:

• 30% Pension commencement lump sum

• 20% withholding tax on income withdrawal for most non residents (0% where a DTA applies)

• No limits on fund size or contributions

• No need to purchase an annuity

• Outside UK IHT for non-UK residents

• Early retirement options for professional sports- people

• Pays income withdrawal at maximum rate of 150% GAD, pre and post age 75

• Low 7.5% tax on fund after death – meaning most of the fund will be able to be passed on to beneciary.

Gibraltar has over 40 schemes listed on the HMRC QROPS list. It has its own pension association and a comprehensive and stringent code of conduct to which all Gibraltar’s pension providers must adhere.

Following its entry into the QROPS market in 2008, Gibraltar continued as a popular QROPS jurisdiction until HMRC raised questions about its 0% tax on its pension income. Gibraltar QROPS providers suspended business voluntarily whilst the Government of Gibraltar communicated with HMRC.

Gibraltar received the green light to continue as a QROPS jurisdiction after HMRC agreed its low income tax rate on pensions of just 2.5%. To date it remains the only jurisdiction to have received a written conrmation to this effect from HMRC.

Because Gibraltar does not rely on the existence of DTAs it does not have to share information with other jurisdictions and therefore those members who live in countries without a tax system or who cannot prove tax residency status may find it a suitable option.

Along with a low tax rate, Gibraltar can also offer some additional exibility that creates an advantage over other QROPS jurisdictions.

One advantage is that members can self-direct the investments, meaning that they are able to instruct the trustees to buy investments on their behalf.

Also, borrowing and lending is allowed.

What are the benefits of a Gibraltar QROPS?:

• Retirement age from 55

• Up to 30% lump sum

• Flexible drawdown options

• Currency options

• Consolidation of pension schemes

• No tax on death

• Low tax on pension income

• No life time allowance limit on investment growth in QROPS post transfer.

Following the Spring Budget 2017 Philip Hammond imposed the Overseas Tax Charge on transfers to QROPS that were requested on or after 9th March 2017. This tax charge will apply if:

• the member has not provided the scheme administrator with all the required prescribed information before the transfer is made or;
• none of the following five conditions are met:

The member is resident in the same country as that in which the QROPS receiving the transfer is established.

The QROPS receiving the transfer is established in Gibraltar or a country within the European Economic Area (EEA) and the member is UK resident or resident in a country within the EEA or Gibraltar.

The QROPS is set up by an international organisation for the purpose of providing benefits for, or in respect of, past service as an employee of the organisation and the member is an employee of that international organisation. PTM112200 provides guidance on the definition of an international organisation. It does NOT simply mean a multi-national employer.

The QROPS is an overseas public service pension scheme and the member is an employee of an employer that participates in the scheme.

The QROPS is an occupational pension scheme and the member is an employee of a sponsoring employer under the scheme.

Your transfer will be tested against Lifetime allowance

A transfer from a registered pension scheme to a QROPS is a benefit crystallisation event (BCE 8) therefore on completion of the transfer we will test the transfer value (before a potential overseas transfer charge) against the current Lifetime Allowance for the year.

With any Lifetime allowance test should it exceed 100% of your available Lifetime Allowance then tax charges will apply.

QNUPS stands for Qualifying Non-UK Pension Schemes. They were introduced in February 2010, born out of amendments to QROPS to clarify the Inheritance Tax treatment. Legislation was backdated to 6 April, 2006.

QNUPS are pension schemes that are not UK registered pension schemes, but are established in a country outside the UK which meets the required HMRC regulations.

QNUPS must satisfy certain requirements in the country in which they are established and they must be tax-recognised, or the scheme must ensure that it can provide for 70% of the funds to be paid to the member as pension income for life.

QNUPS cannot accept the transfer of UK registered pension schemes, but can accept the transfer of personal assets. They are more exible than a QROPS and can come under local rules immediately. They can invest in residential property in certain circumstances which a QROPS cannot do.

There is no requirement for a QNUPS to report to HMRC any payments to members.

QNUPS can be used by individuals who wish to top-up their UK pensions as they may have left pension planning late or be restricted by UK Lifetime Allowance limits. QNUPS should be implemented in the correct manner to show that it is being used for bona de pension provision. This can be confirmed by an actuary who can calculate the justiable amount.

An additional advantage of QNUPS is that they can be Inheritance Tax efficient.

Inheritance Tax is not based on residency but is based on domicile. Therefore expats will be subject to inheritance tax in the UK on their worldwide estate including non-UK sited assets.

Subject to pension planning being the primary motive, a QNUPS is a way of taking personal assets out of individual hands and placing them into a pension scheme which is exempt from inheritance tax (IHT). However the provision of bonafide retirement benets must be justied. This is confirmed by an actuary who would calculate the justiable amount. Certainly transferring all assets on your deathbed would not obtain the IHT exemption.

Most QNUPS jurisdictions are very similar as they have to comply with certain rules to qualify as a QNUPS, however there are small differences in the way the scheme can be invested and the tax treatment of the income coming out of the QNUPS.