British expats abroad can now get more control over their pensions plans, thanks to new rules that remove many restrictions for people who retire overseas.
They can pay lower tax on income drawn from a relatively new form of pension, avoid being forced to invest capital in an annuity which dies with the purchaser and pass their wealth to friends and family free of tax on death.
Needless to say, these important new opportunities are subject to extensive legislation, which will be discussed in detail later. However, the important point for now is that a Qualifying Recognised Overseas Pension Scheme (QROPS) can enable savers to enjoy the best of both worlds.
Portugal You can receive valuable tax reliefs while working and saving toward retirement in the United Kingdom, without needing to pay higher taxes when you draw benefits or submit to UK restrictions on how you invest and spend the fund.
What is a Qualifying Recognised Overseas Pension Scheme (QROPS)?
As its name suggests, this is a form of pension based outside the UK which is recognised by the British authorities as being eligible to receive transfers from registered UK pension funds. Reputable advisers will only recommend transfers to countries which provide consumer protection equivalent or greater than the safeguards in the UK.
People who are living inside or outside the UK can transfer their deferred company and personal pensions to a QROPS. Any pension can be transferred as long as an annuity has not been purchased or, if it’s a final salary scheme, that the pension has not commenced.
Better still, where the pensioner has not been resident in the UK for five complete and consecutive fiscal years – and the tax rules determining residence will be examined in detail later in this guide – HMRC restrictions on how income and capital are spent no longer apply.
For example, as set out in Clause 2 Schedule 34 of the Finance Act 2004, there is no need to report what HMRC would regard as “unauthorised payments” and tax of up to 82 per cent that might be levied on such payments in the UK can be avoided. However, it is important to understand this does not mean trust busting is acceptable.
Who might benefit from considering a QROPS?
Anyone considering retiring overseas and becoming resident in a foreign jurisdiction or country for five years or more. The amount of tax you pay on income and capital received from your QROPS will be determined by the taxation of the country in which it is based and you are resident.
These laws or fiscal statutes vary from country to country but many are more favourable to pensioners than those in the UK.
For example, pensioners resident in Cyprus can opt to pay a fixed flat rate of five per cent tax on all income above a small tax-free band or personal allowance; alternatively, they can choose to receive a higher personal allowance and pay higher rates of income tax on any income in excess of the allowance.
The best option for you will depend on your personal circumstances and it makes sense to take professional advice which can take account of your individual needs and objectives.
British pensions that can be transferred to a QROPS include former employers’ occupational schemes (but not final salary or defined benefit schemes already in payment); Superannuation Schemes; Executive Pension Schemes; Self Invested Personal Pension Schemes (SIPPSs); Small Self Administered Schemes (SSASs); Section 226 Personal Pension Schemes; Section 32 Pension Transfers and Personal Pensions.
You cannot transfer British Government or State pensions to a QROPS.
Do I need to leave the UK forever to benefit from QROPS?
No. Rising numbers of people who decide to retire overseas – perhaps to enjoy better weather and a lower cost of living – can take advantage of a QROPS. You can continue to visit friends and family or return to Britain for any reason, provided you remain a non tax resident of the UK. So, you could return to the UK whenever you wish but the maximum length of time you can spend in Britain will be limited before UK taxes apply.
For example, you must beware of the six-month rule and the three-month average rule to avoid becoming resident in the UK again for tax purposes and losing the advantages of QROPS.
If you are present in the UK for 183 days or more in any tax year – which starts on April 6 and ends on April 5 – or you are present in the UK for an average of 91 days or more per annum, measured over up to four years, then you may become resident in the UK for tax purposes.
But be careful because, these days, rules are not the law. It is possible to remain a UK tax resident even if you spend less than 90 days in the UK, so it makes sense to take advice that is specific to your individual circumstances in this very tricky area.
Since April 6 2008, if an individual is present in the UK at midnight, that counts as one day’s residence. In practice, days of arrival in the UK are counted but days of departure are discounted. Where an individual arrives and departs on the same day, this will not count as a day’s residence for tax purposes.
Are QROPS suitable for everyone?
No. Most British pensioners retire as UK residents and so must pay UK tax. There is no statutory limit on the minimum value of pensions that can be transferred to a QROPS but only funds worth more than £100,000 are likely to generate sufficient tax savings to justify set-up costs, which vary between one per cent and five per cent of the fund transferred.
Pensioners who have plans or policies with Guaranteed Annuity Rates (GARs) higher than returns available today, may also find QROPS do not justify giving up their GARs. As mentioned earlier, Government pensions – excluding the National Health Service scheme - British State pensions and final salary or defined benefit pensions already in payment cannot be transferred to QROPS.
Why it makes sense to take specialist advice
Given the complexity and variety of different countries’ tax laws, this guide can only serve as a general introduction to the new opportunities created by QROPS. Specialist financial advisers, who are authorised in the UK and the country to which you intend to retire, can answer questions specific to your individual circumstances.
Remember that the fundamental purpose of a pension is to provide retirement income. So, it is vital to ensure that your money does not run out before you do – and to avoid taking unnecessary risks with your income or capital. For these reasons, it makes sense to consult fully-authorised, specialist advisers before making any decisions about QROPS.
But the first step for most people will be to build up the maximum pension they can within the UK’s tax rules, and this is the subject of the next chapter.
Remember that the fundamental purpose of a pension is to provide retirement income. So it is vital to ensure that your money does not run out before you do – and to avoid taking unnecessary risks with your income or capital.
By Ian Cowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7188812/QROPS-and-pensions-advice-for-expats.html
Thursday, 11 February 2010
QROPS Advice: Beware Global Grasp of IHT
Beware global grasp of IHT
IHT is assessed on the worldwide assets of people domiciled in the UK, including foreign countries where there are no or low death duties. You could be resident overseas but still deemed to be domiciled in the UK and liable to pay IHT, if HMRC can establish that Britain was the country which you still regarded as home at the time of your death.
For this reason, specialist advisers will often recommend that you consider selling your UK home and other British property when transferring to a QROPS. However, it will also be important to consider ways of preserving the real value or purchasing power of your pension overseas – before and after you draw benefits from your retirement fund - and these are the subjects of the next chapter.
Many countries overseas impose lower taxes on pensions than the United Kingdom and allow pensioners more choice about how they spend their savings. Quicker and cheaper international travel also makes it easier to consider retiring abroad while retaining the ability to return to the UK if you wish to do so.
QROPS enable pension savers who have left or intend to leave the UK and become non-resident in the UK for tax purposes, to enjoy the best of both worlds. They can take their retirement savings with them to a lower-tax jurisdiction and obtain greater freedom about how they spend or invest their savings than would be the case in the UK.
For example, after transferring to QROPS a pensioner who has been non-resident in the UK for at least five full tax years, could use their pension fund to buy residential property as an asset for their QROPS – and, it is worth pointing out, residential property is a form of asset which cannot usually be held within British pensions. You do not have to buy an annuity, you can have your fund in sterling or any currency and avoid up to 82 per cent tax against the fund imposed in the UK. The entire fund can be left tax-free to benefit your heirs.
By Ian Cowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7188890/QROPS-and-pensions-before-you-go.html
IHT is assessed on the worldwide assets of people domiciled in the UK, including foreign countries where there are no or low death duties. You could be resident overseas but still deemed to be domiciled in the UK and liable to pay IHT, if HMRC can establish that Britain was the country which you still regarded as home at the time of your death.
For this reason, specialist advisers will often recommend that you consider selling your UK home and other British property when transferring to a QROPS. However, it will also be important to consider ways of preserving the real value or purchasing power of your pension overseas – before and after you draw benefits from your retirement fund - and these are the subjects of the next chapter.
Many countries overseas impose lower taxes on pensions than the United Kingdom and allow pensioners more choice about how they spend their savings. Quicker and cheaper international travel also makes it easier to consider retiring abroad while retaining the ability to return to the UK if you wish to do so.
QROPS enable pension savers who have left or intend to leave the UK and become non-resident in the UK for tax purposes, to enjoy the best of both worlds. They can take their retirement savings with them to a lower-tax jurisdiction and obtain greater freedom about how they spend or invest their savings than would be the case in the UK.
For example, after transferring to QROPS a pensioner who has been non-resident in the UK for at least five full tax years, could use their pension fund to buy residential property as an asset for their QROPS – and, it is worth pointing out, residential property is a form of asset which cannot usually be held within British pensions. You do not have to buy an annuity, you can have your fund in sterling or any currency and avoid up to 82 per cent tax against the fund imposed in the UK. The entire fund can be left tax-free to benefit your heirs.
By Ian Cowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7188890/QROPS-and-pensions-before-you-go.html
Tuesday, 9 February 2010
Why HMRC will not be happy bunnies this year
QROPS are very much in the news at the moment. Recent newspaper articles have screamed at readers “Take your money and run” (The Telegraph) and “Get your money out of Britain” (Sunday Times). Much to the annoyance of HMRC, it seems people are doing just that. Recently released figures showed there was a 154% increase in transfers to QROPS in the 2007/08 tax year compared to the year before, while
uptake of new QROPS was said to have doubled in the last three months of 2009.
HMRC, which has already penalised pension rules abusers and closed down Singapore as a QROPS jurisdiction for misrepresentation, will not be amused by the headlines or pleased by the growth of a market that diverts revenue from government coffers.
Regardless, for the right person in the right place QROPS are highly attractive.
Since April 2006 it has been possible, providing you have been non-resident for five years, to:
■ receive your pension free of tax (dependent on where you transfer it to);
■ avoid purchasing annuities;
■ avoid an Alternatively Secured Pension at 75, resulting in losing 82% of fund in taxes on death;
■ unlimited fund size;
■ pass on to your beneficiaries the balance tax-free.
But to continue to enjoy such benefits, more respect needs to be given to HMRC
– quite simply, do not abuse the rules and do not delay making a transfer. Pension legislation changes like the breeze, and all the current inflammatory press attention
could bring an ill wind sooner than you think.
uptake of new QROPS was said to have doubled in the last three months of 2009.
HMRC, which has already penalised pension rules abusers and closed down Singapore as a QROPS jurisdiction for misrepresentation, will not be amused by the headlines or pleased by the growth of a market that diverts revenue from government coffers.
Regardless, for the right person in the right place QROPS are highly attractive.
Since April 2006 it has been possible, providing you have been non-resident for five years, to:
■ receive your pension free of tax (dependent on where you transfer it to);
■ avoid purchasing annuities;
■ avoid an Alternatively Secured Pension at 75, resulting in losing 82% of fund in taxes on death;
■ unlimited fund size;
■ pass on to your beneficiaries the balance tax-free.
But to continue to enjoy such benefits, more respect needs to be given to HMRC
– quite simply, do not abuse the rules and do not delay making a transfer. Pension legislation changes like the breeze, and all the current inflammatory press attention
could bring an ill wind sooner than you think.
QROPS Advice: QROPS very much in the News
QROPS are very much in the news at the moment. Recent newspaper articles have screamed at readers “Take your money and run” (The Telegraph) and “Get your money out of Britain” (Sunday Times). Much to the annoyanceof HMRC, it seems people
are doing just that. Recently released figures showed there was a 154% increase
in transfers to QROPS in the 2007/08 tax year compared to the year before, while
uptake of new QROPS was said to have doubled in the last three months of 2009.
HMRC, which has already penalised pension rules abusers and closed down Singapore as a QROPS jurisdiction for misrepresentation, will not be amused by the headlines or
pleased by the growth of a market that diverts revenue from government coffers.
Regardless, for the right person in the right place QROPS are highly attractive. Since April 2006 it has been possible, providing you have been non-resident for five years, to:
■ receive your pension free of tax (dependent on where you transfer it to);
■ avoid purchasing annuities;
■ avoid an Alternatively Secured Pension at 75, resulting in losing 82% of fund in taxes on death;
■ unlimited fund size;
■ pass on to your beneficiaries the balance tax-free.
But to continue to enjoy such benefits, more respect needs to be given to HMRC – quite simply, do not abuse the rules and do not delay making a transfer. Pension legislation changes like the breeze, and all the current inflammatory press attention
could bring an ill wind sooner than you think.
are doing just that. Recently released figures showed there was a 154% increase
in transfers to QROPS in the 2007/08 tax year compared to the year before, while
uptake of new QROPS was said to have doubled in the last three months of 2009.
HMRC, which has already penalised pension rules abusers and closed down Singapore as a QROPS jurisdiction for misrepresentation, will not be amused by the headlines or
pleased by the growth of a market that diverts revenue from government coffers.
Regardless, for the right person in the right place QROPS are highly attractive. Since April 2006 it has been possible, providing you have been non-resident for five years, to:
■ receive your pension free of tax (dependent on where you transfer it to);
■ avoid purchasing annuities;
■ avoid an Alternatively Secured Pension at 75, resulting in losing 82% of fund in taxes on death;
■ unlimited fund size;
■ pass on to your beneficiaries the balance tax-free.
But to continue to enjoy such benefits, more respect needs to be given to HMRC – quite simply, do not abuse the rules and do not delay making a transfer. Pension legislation changes like the breeze, and all the current inflammatory press attention
could bring an ill wind sooner than you think.
QROPS Advice: Survey: the good life ‘turns sour’ for many expat Britons
Expatriate Britons are struggling to cope with the mostly weakening pound in a number of key offshore markets, a survey by foreign exchange provider Moneycorp has found, with those in Spain described as suffering the most. Émigrés in Australia and
New Zealand, however, appeared “relatively unaffected by the weakening pound”, the survey noted. It also found expats “hit hard” by problems in many foreign property markets.
The findings echo those of other recent surveys, as well as the recent comments of
many financial advisers with expatriate clients. The survey was conducted in October and November for Moneycorp by consultancy Vanson Bourne. It sought the opinions of some 250 Europe based UK expats, and another 250 British expats from Canada, Australia and New Zealand.
Expats living in these last two countries appeared to be faring better than some other Brits living far from home. “Less than a quarter of British expats in Australia
(23%) and New Zealand (24%) said their spending power had decreased,” Moneycorp said.
Other findings of the survey:
■ More than four in five (85%) Spanish expats say the value of sterling has impacted them financially, with three quarters (79%) saying that their spending power has decreased as a result.
■ Britons living in Germany and Italy are also being significantly impacted by the fall in sterling, as 67% and 66% of expats in these countries, respectively, reported
feeling the pinch.
■ In France, the story is similar, with nearly half reporting they are being
impacted by the fall in sterling; the figure in the
US was 61%.
BY HELEN BURGGRAF
New Zealand, however, appeared “relatively unaffected by the weakening pound”, the survey noted. It also found expats “hit hard” by problems in many foreign property markets.
The findings echo those of other recent surveys, as well as the recent comments of
many financial advisers with expatriate clients. The survey was conducted in October and November for Moneycorp by consultancy Vanson Bourne. It sought the opinions of some 250 Europe based UK expats, and another 250 British expats from Canada, Australia and New Zealand.
Expats living in these last two countries appeared to be faring better than some other Brits living far from home. “Less than a quarter of British expats in Australia
(23%) and New Zealand (24%) said their spending power had decreased,” Moneycorp said.
Other findings of the survey:
■ More than four in five (85%) Spanish expats say the value of sterling has impacted them financially, with three quarters (79%) saying that their spending power has decreased as a result.
■ Britons living in Germany and Italy are also being significantly impacted by the fall in sterling, as 67% and 66% of expats in these countries, respectively, reported
feeling the pinch.
■ In France, the story is similar, with nearly half reporting they are being
impacted by the fall in sterling; the figure in the
US was 61%.
BY HELEN BURGGRAF
QROPS Advice: Equity Trust challenges QROPS decision
Equity Trust, trustee of the Panthera ROSIIP pension fund, is taking the UK tax authority to court to challenge the removal of Singapore’s QROPS status in May 2008.
The trust company, which established Panthera in a joint venture with Credit Suisse subsidiary Clariden Leu, said it has tried to come to a mutual agree-ment with HMRC over the future status of the scheme but has so far failed. In a letter to policyholders dated 20 January, Equity Trust said it issued a letter to HMRC under the ‘Pre action Protocol’ within the Civil Procedure Rules in December but received
no response. It has subsequently made an application to the UK’s High Court for ROSIIP to be restored to QROPS status.
The letter from Equity Trust director Fredrik van Tuyll also said ROSIIP had always been managed within QROPS legislation. The reasons for the decision to bar Singapore have never been fully explained due to the Revenue’s silence on the matter. Industry
sources suggested at the time the problem could lie with Singapore’s taxation of pensions, rather than a single scheme’s actions.
BY SIMON DANAHER
The trust company, which established Panthera in a joint venture with Credit Suisse subsidiary Clariden Leu, said it has tried to come to a mutual agree-ment with HMRC over the future status of the scheme but has so far failed. In a letter to policyholders dated 20 January, Equity Trust said it issued a letter to HMRC under the ‘Pre action Protocol’ within the Civil Procedure Rules in December but received
no response. It has subsequently made an application to the UK’s High Court for ROSIIP to be restored to QROPS status.
The letter from Equity Trust director Fredrik van Tuyll also said ROSIIP had always been managed within QROPS legislation. The reasons for the decision to bar Singapore have never been fully explained due to the Revenue’s silence on the matter. Industry
sources suggested at the time the problem could lie with Singapore’s taxation of pensions, rather than a single scheme’s actions.
BY SIMON DANAHER
QROPS Advice: QROPS News: Time to move?
The screws are tightening on the bank accounts of high net worth individuals, particularly those in the City. With effect from April, anyone earning more than £100,000 will see their personal tax allowances reduced, and those with an income of more than £150,000 will be taxed at a top rate of 50 per cent. Individual bonuses to bank workers of more than £25,000 paid before April, meanwhile, are subject to a 50 per cent levy paid by the bank; the employees also pay income tax on the money they receive.
So, who's leaving?
There's been talk of an exodus of high net worth individuals since the Chancellor first outlined his tax hike plans in last April's Budget. David Anderson of London law firm Sykes Anderson thinks the new regime "may be the last straw for high net worth individuals who have already been directly targeted by the changes to non-domicile taxation and the abolition of taper relief for capital gains tax (CGT) purposes."
However, Paddy Dring, head of the international residential department at property consultant Knight Frank, believes that only a relatively small number have actually left the country so far. "Others are making preparations but are waiting to see what happens over the coming year," he says.
"There are without doubt some who will leave London, but many are realising they have underestimated the complexities of going," adds Jonathan Hewlett, head of Savills' London office. "More and more, we are hearing about people who've looked at moving but can't find the right place to go - a place where their partner will be happy and there are good school choices. The young are more transient, however, and there is a perception that they will go wherever the good deals are."
Tax issues
Those complexities extend well beyond school choice. Paul Garwood, head of personal financial planning at London accountant Smith & Williamson, points out that HM Revenue & Customs (HMRC) has not been making it any easier to escape the UK tax system recently.
The test for residency (which governs the requirement to pay UK tax) used to be that if you were in the UK for more than 183 days in a tax year, or more than 90 days a year over a four-year period, then you were UK resident. But as Mr Garwood explains: "Now, if you haven't qualified for resident status in another country and you keep your UK home, they may just count you as UK resident anyway if you return at all, so you really need to plan carefully and burn your UK boats if you're serious about it."
That may well mean selling your home, rather than renting it out. It also means ensuring you spend enough time in your new jurisdiction to qualify as tax resident there. You can no longer work in Paris during the week but nip home to see your family in Britain at the weekends if you want to escape the UK tax regime.
The tougher regime is a particular problem for people trying to move directly to a tax haven such as Monaco, says Mr Anderson. "First, it is harder to prove you've left the UK for good, as the Revenue is far less likely to accept you are moving your life away from the UK," he explains. "Secondly, Monaco has no double tax treaty in place with the UK, so you could find you’re a dual resident for tax purposes, and therefore remain liable for UK income tax. (Double tax treaties contain a test to establish your residency for tax purposes in either one country or the other; dual residency is not possible.)
"It can be much simpler therefore to move to a country which has a more favourable regime than the UK but also has a double tax treaty with the UK, such as France," Mr Anderson suggests.
Pension planning
Apart from tax residency itself, you need to plan other tax-related aspects of your finances. Pensions are one key consideration. If you are in your employer's pension scheme, you will be able to remain in the scheme when you're working abroad for a maximum period of ten years; after that you may be able to negotiate a move into a local equivalent scheme.
If you are moving overseas indefinitely, you could consider transfer your UK pension into a Qualified Recognised Overseas Pension Scheme (QROPS) - an overseas pension scheme approved by HMRC. The advantage is that they are governed by the local tax rules, and these tend to be more flexible than the UK system. For example, you may not have to buy an annuity with the bulk of your fund; there may be less or no tax to pay on pension payments; or it may be possible to take the whole lot as a lump sum.
by:Faith Glasgow
http://www.investorschronicle.co.uk/InvestmentGuides/FinancialPlanning/article/20100208/b01de62e-125c-11df-bbca-0015171400aa/Time-to-move.jsp
So, who's leaving?
There's been talk of an exodus of high net worth individuals since the Chancellor first outlined his tax hike plans in last April's Budget. David Anderson of London law firm Sykes Anderson thinks the new regime "may be the last straw for high net worth individuals who have already been directly targeted by the changes to non-domicile taxation and the abolition of taper relief for capital gains tax (CGT) purposes."
However, Paddy Dring, head of the international residential department at property consultant Knight Frank, believes that only a relatively small number have actually left the country so far. "Others are making preparations but are waiting to see what happens over the coming year," he says.
"There are without doubt some who will leave London, but many are realising they have underestimated the complexities of going," adds Jonathan Hewlett, head of Savills' London office. "More and more, we are hearing about people who've looked at moving but can't find the right place to go - a place where their partner will be happy and there are good school choices. The young are more transient, however, and there is a perception that they will go wherever the good deals are."
Tax issues
Those complexities extend well beyond school choice. Paul Garwood, head of personal financial planning at London accountant Smith & Williamson, points out that HM Revenue & Customs (HMRC) has not been making it any easier to escape the UK tax system recently.
The test for residency (which governs the requirement to pay UK tax) used to be that if you were in the UK for more than 183 days in a tax year, or more than 90 days a year over a four-year period, then you were UK resident. But as Mr Garwood explains: "Now, if you haven't qualified for resident status in another country and you keep your UK home, they may just count you as UK resident anyway if you return at all, so you really need to plan carefully and burn your UK boats if you're serious about it."
That may well mean selling your home, rather than renting it out. It also means ensuring you spend enough time in your new jurisdiction to qualify as tax resident there. You can no longer work in Paris during the week but nip home to see your family in Britain at the weekends if you want to escape the UK tax regime.
The tougher regime is a particular problem for people trying to move directly to a tax haven such as Monaco, says Mr Anderson. "First, it is harder to prove you've left the UK for good, as the Revenue is far less likely to accept you are moving your life away from the UK," he explains. "Secondly, Monaco has no double tax treaty in place with the UK, so you could find you’re a dual resident for tax purposes, and therefore remain liable for UK income tax. (Double tax treaties contain a test to establish your residency for tax purposes in either one country or the other; dual residency is not possible.)
"It can be much simpler therefore to move to a country which has a more favourable regime than the UK but also has a double tax treaty with the UK, such as France," Mr Anderson suggests.
Pension planning
Apart from tax residency itself, you need to plan other tax-related aspects of your finances. Pensions are one key consideration. If you are in your employer's pension scheme, you will be able to remain in the scheme when you're working abroad for a maximum period of ten years; after that you may be able to negotiate a move into a local equivalent scheme.
If you are moving overseas indefinitely, you could consider transfer your UK pension into a Qualified Recognised Overseas Pension Scheme (QROPS) - an overseas pension scheme approved by HMRC. The advantage is that they are governed by the local tax rules, and these tend to be more flexible than the UK system. For example, you may not have to buy an annuity with the bulk of your fund; there may be less or no tax to pay on pension payments; or it may be possible to take the whole lot as a lump sum.
by:Faith Glasgow
http://www.investorschronicle.co.uk/InvestmentGuides/FinancialPlanning/article/20100208/b01de62e-125c-11df-bbca-0015171400aa/Time-to-move.jsp
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