Qualifying Recognised Overseas Pension Schemes (QROPS) were introduced in April 2006 as part of ‘Pension Simplification’. With effect from this date it became possible to transfer a UK approved pension scheme overseas to a Qualifying Recognised Overseas Pension Scheme (QROPS). These transfers are considered by HMRC as ‘recognised transfers’ therefore ‘unauthorised member payment charges’ do not apply. Before HMRC will authorise a QROPS, the provider must meet certain conditions and agree to strict reporting requirements.
Table des matières :
- 1 What is a QROPS?
- 2 What are the reporting requirements?
- 3 What is the tax position?
- 4 Who should consider a transfer?
- 5 What can be transferred?
- 6 Investment flexibility
- 7 Other points to consider
- 8 What can I withdraw from my Retirement Scheme?
- 9 Taxation
- 10 Need help to transfert your UK pension to France ?
What is a QROPS?
To qualify, an overseas pension scheme must:
• be established in a country or territory which regulates pensions schemes
• incorporate rules stipulating that at least 70% of the fund be used to provide an income for life
• not provide benefits to the member before the normal UK pension age of 55 years
• be ‘recognised for tax purposes’ in the country or territory that it is established. This means that either the benefits or contributions are taxed
• be open to residents in the country or territory in which it is established
What are the reporting requirements?
A QROPS must provide HMRC with details of all benefit crystallisation events for the first 10 complete and consecutive tax years from the date of transfer out of the UK. The benefit
crystallisation event information required is:
a) the name and address of the relevant migrant member or individual (as the case may be) in respect of whom there has been a benefit crystallisation event in the tax year; and
b) the date, amount and nature of the benefit crystallisation event.
What is the tax position?
As a rule, UK Pension Schemes only allow for 25% cash to be withdrawn at retirement and a taxable income stream generated by the residual fund whether the member is UK resident or not. (It is possible to ask HMRC to provide the income stream gross, but this is generally only done on proof that you are fully taxed in your current country of residence, and that HMRC approve of that country’s tax system.)
IHT (Inheritance Tax) QROPS are provided with the same protection as UK Regulated Pension Schemes. Tax Free Roll-Up within the fund. The tax on distribution will depend upon the residence of the QROPS (e.g. local withholding taxes) and the member’s country of residence. (Members should always seek independent tax advice on this matter.)
There is no requirement for a QROPS to either purchase an Annuity or ASP (Alternatively Secured Pension) at age 75 unless local regulations require it.
Who should consider a transfer?
QROPS are potentially suitable for those who have already emigrated from the UK on a permanent basis, UK Non-Domiciles who will return home, and those intending to emigrate from the UK on a permanent basis in the near future.
QROPS are not suitable for those who remain Domiciled and Tax Resident in the UK or those who intend to return to the UK on a permanent basis.
It is recommended that clients should seek advice from a suitably qualified and regulated independent financial adviser before proceeding with any transfer.
What can be transferred?
Most UK Pension Schemes can be transferred to a QROPS including both Protected Rights and those in ‘drawdown’. The exceptions are the State Pension and most Final Salary and Defined Benefit Schemes that are in payment.
Many QROPS providers impose investment restrictions, however there are various schemes which offer genuine ‘open architecture’ (investment freedom).
The Trustees’ preference is for a client/adviser to appoint a fund/investment manager to take safe custody of the assets and to act on the investment instructions of the client and or adviser. This
will allow investments to be managed on a discretionary or advisory basis within the following categories:
• Stocks, bonds, alternative investments, hedge funds, structured products & deposits
In addition the following asset classes are permitted:
• Private Equity – held indirectly through a separate wholly owned offshore company
• Real Estate – held indirectly through a separate wholly owned offshore company (Finance Act 2006 (Sch 21, para 14(3)) and subsequent regulations – The Pensions Schemes (Application of
UK Provisions to Relevant Non-UK Schemes) (Amendment) Regulations 2006/1960, Taxable Property.)
Other points to consider
A transfer to a QROPS will be a benefit crystallisation event and will give rise to a lifetime allowance charge if the amount transferred exceeds the individual’s unused lifetime allowance (LTA). The LTA to which everyone is entitled will be £1.5 million in 2012/2013. Any Enhanced Protection that is in place prior to transfer will also remain in place post transfer. If an unauthorised payment is made then that will give rise to a 40% unauthorised payments charge and, possibly, to a 15% unauthorised payments surcharge. A payment could give rise to a member payment charge under schedule 34 to FA 2004. In particular, the individual will be liable to an unauthorised payments charge if the payment would have been unauthorised had it been made from a UK registered pension scheme.
What can I withdraw from my Retirement Scheme?
At retirement age the QROPS will pay up to 30% as a Pension Commencement Lump Sum (PCLS), [formerly known as Tax Free Cash (TFC)], provided that no such benefits have previously been taken in the UK. Income Payments are calculated subject to MFSA rules. Existing Income Drawdown: For policyholders with Existing Income Drawdown schemes (Unsecured Pensions); following the transfer to QROPS, the receiving scheme will be required to provide benefits on a like-for-like basis as preceding the transfer.
The French difference – IMPORTANT
Within the standard « QROPS » list, there are some French « QROPS », which have been approved by HMRC.
The most important one, and the most commonly used in the PERP – Plan d’Epargne Retraite Populaire. It’s a QROPS with a difference compared with what we could call the more traditional QROPS seen in Malta, Guernsey, Isle Of Man, etc…
Important differences and advantages over a « standard QROPS » (which would be outside of France)
For those who are intending to move to France and to live there for the rest of their life, there is the advantage to have their pension capital near to you and domiciled in the country where you would like to spend your retirement years. By doing this you transform your UK pension into a pension fund Euro-denominated and thus reduce currency exposure and the risk associated with currency movements. There is another advantage which is to simplify your tax declaration in France – for those who received annuities from outside of France, calculations are often complex and in most cases, this results in having an accountant doing this for you.
French PERP can only pay income at 62 (official retirement age in France) when the pension is liquidated. Nevertheless, there are some exceptions which allow you to receive a full pension before the age of 65: in the case of disability, in the event of a spouse or a partner (PACS) death, in case of the judicial liquidation of a company, invalidity or long-term unemployment. The retiree is also allowed to get the integrality of the constituted saving when he is purchasing a primary residency for the first time in France. The capital that can be either received in one stroke or in successive transfers is taxable as income.
Since January 2011, it is now possible for the French retiree to access 20% of the amount saved in capital in their PERP at retirement. The rest of the capital is paid as lifetime annuities which are taxed at an income tax rate. The 20% capital is not a tax-free lump sum and will be taxed as income tax although there is a mechanism that reduces the impact of the increase of the marginal tax rate. More precisely the 20% are taxable according to a specific tax rule : 1/15 of the capital received is added to your taxable income and the surplus of tax generated is then multiplied by 15 which gives the additional tax to pay. So for the UK retiree who is in drawdown having already taken their 25% tax free lump sum commutation whilst UK resident – this aspect of PERP’s allows a further capital drawdown of 20%. This “right” is only crystallized after 10 years within the PERP.
What can be of interest for high net worth clients is the fact that amounts invested in a PERP plan avoid wealth tax / Impôt Sur la Fortune (ISF) which all French residents with worldwide assets worth more than €1,300,000 (new threshold for 2011) have to pay. A PERP is then a good vehicle to avoid paying Wealth Tax on pension funds or to avoid ISF in case you do not reach the threshold from which you start be liable tio the tax.
A PERP is also significantly cheaper than a standard QROPS…
By investing into a PERP the investor receives an income tax credit for payments made into it, up to 10% of professional incomes received throughout the previous year. This is however limited to 8 times the annual amount of the French social security ceiling so a maximum deduction of €37,032 for 2013 and the minimum deduction is 10% of this ceiling i.e. €3,703. Please note that this does not apply to capital but only to ongoing contributions.
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