QROPS offshore pensions are lauded as a financial solution for ex pats – but the investment is not for everyone living overseas.
Ex pat is a term that has a different meaning for Brits living overseas.
In QROPS terms, an ex pat is someone with UK pension rights who now lives permanently abroad and is likely to do so for the foreseeable future.
An ex pat is not an offshore worker who is living overseas for a couple of years.
The key point is to qualify to start a QROPS, a retirement saver has to meet some simple qualifying conditions:
- They are no longer tax resident in the UK or are intending to move permanently overseas within six months
- They do not retain a home and have severed personal connections with the UK, like financial arrangements, they do not hold a UK driving licence and do not appear on an electoral roll.
For Brits living overseas who still consider the UK as their main home, a QROPS is not a good pension vehicle – a UK pension, like a self-invested pension plan (SiPP) is a better option.
One point to consider is UK tax residents receive tax relief on pension contributions even when they work abroad temporarily.
Residency is also a factor that affects taking out a QROPS.
The best international financial advisers will consider tax interaction between the country where a QROPS investor lives and where the pension scheme is based – they do not have to be the same place.
So, it’s perfectly fine for a Spanish resident to have a QROPS based in New Zealand, Guernsey or the Isle of Man.
Inheritance tax should not be an issue for QROPS investors, because the scheme is held in trust and effectively sits outside any estate on death.
Income tax on benefits paid from the pension fund will depend on the tax rules where the retirement saver lives.
For QROPs investors returning to the UK, taking professional pension advice before returning to Britain is imperative as UK residents cannot hold a QROPS and HM Revenue & Customs may inflict stringent financial penalties on QROPS savers who break the rules.