top of page

QROPS

BENEFITS

Significant tax savings:

  • Tax Free Lump Sum pay out:

    • When you come to start drawing benefits from a UK Pension scheme, 25% can be taken immediately as a tax free lump sum (if you are UK resident but if you live abroad this can be taxable), so long as certain limits are not exceeded – i.e. total pensions are not larger than the lifetime allowance (LTA), which is currently £1,500,000, unless you have any transitional protection in place.  However, with a QROPS, after the ten year reporting period the UK payment rules no longer apply, meaning you may be able to take up to 30% as a pension commencement lump sum.

  • 25% tax free lump sum of your total pension fund.

  • No death duty tax:

    • For UK pensions, so long as an individual is aged below 75 and has yet to draw benefits from their pension on death any lump sum payable is free from UK tax. However after the age of 75 and any pension benefits which have been drawn upon (crystallised benefits) are subject to a 55% tax charge if paid as a lump sum to a beneficiary.  If paid as a dependant’s pension the benefits are also free from tax other than any income tax due from the beneficiary. With a QROPS regardless of whether the member has started taking benefits (on or after the age of 55) or not, dependent on how the pension is structured, there ‘may’ be no income tax charge imposed on the payment of a lump sum to the member’s dependants on death providing they have been non UK-resident for at least five complete tax years. 

  • No Inheritance Tax:

    • Those people with large estates may often wish to lose their ‘Domicile of Origin’ and gain a ‘Domicile of Choice’.  This may enable them to avoid paying UK IHT on their non UK assets.  It is, however, very difficult to lose a Domicile of Origin.

    • Where this is the case a person will almost invariably be advised to cut all ties with the UK, moving everything to the country which they wish to be their Domicile of Choice.  This will mean moving everything including business assets, home, will, family and even their place of rest.

    • Holding a UK Pension is yet another UK based asset, which means by transferring to a QROPS you are able to break another tie adding more weight to the argument.

 

  • Free tax income from 55.

  • Safe guard against the falling LTA:

    • The LTA has reduced in real terms ever since 2010/11, when the then Chancellor, Alistair Darling, saw it as a means of raising funds through this additional tax.  The table below shows how the LTA has fallen again on 5th April 2014 to £1,250,000, taking its fall to 70% from its peak of £1,800,000. See table. If the LTA is exceeded the excess is taxed at 55% if taken as a lump sum or 25% if taken as income although there is still income tax to also be applied. This makes it highly painful and extremely tax inefficient for a pension holder who may exceed the LTA. When a UK pension scheme is transferred to a QROPS its value is tested against the LTA at that point.  As the pension has been tested against the LTA at that stage any future growth is then outside of the scope of the LTA.  This means there could be a very real benefit for someone to transfer to a QROPS now to test their pension before it falls again.  Just to note any transfer to a QROPS which exceeds the LTA triggers a tax charge of 25% irrespective of how the benefits are later taken i.e. as a lump sum or income. The trend has quite obviously been for the LTA to fall which makes this a reason for many to transfer to a QROPS. 

  • Income Taxed  in country of residence:

    • UK pensions are generally paid out net of basic-rate tax. PAYE applies to all pensions from registered pension schemes. However, non-UK tax resident members can elect for payment to be paid out gross by completing the relevant HMRC form depending on relevant tax treaties. With a QROPS, clients can transfer to a jurisdiction which pays out gross income (if a tax treaty is in place with the new country of residence) or has flexible income tax provisions. 

 

 

 

 

 

 

 

 

 

LTA
bottom of page