Expats with pensions from the UK who are under the assumption that they will be able to cash them in tax free as soon as next April comes along, are sadly deluded according to pension analysts.
While it is true that at first glance, the new rules announced in the April Budget2014 appear to offer considerably more flexibility than ever before, much is still to be decided upon, and is under review.
When George Osborne surprisingly announced that “defined contribution” schemes would no longer have to be used to buy an annuity, the millions who had saved into these schemes for years were barely able to contain their excitement.
However, there is more to this than meets the eye. The new rules allow people to cash in all of their savings immediately as they retire, or indeed take “flexible pension drawdown” giving them the option to draw on their pension as and when they need it.
In actual fact, amounts drawn out from the retirees pension pot will be subject to income tax the following year, so anybody looking to draw their entire savings in one go will be hit with a large tax bill the following year.
Expats aren’t excluded from this, as any income they draw from UK sources is also liable to UK income tax, and this doesn’t just apply to pensions, this also counts for any earnings from investments or buy-to-let properties.
While the Budget attempts to operate under the guise of flexibility, there will be a couple of inevitable terms that could potentially make the idea of drawing the whole fund in one go a lot less appealing.
Expats can already benefit from more flexibility than offered on the shores of the UK by transferring their UK pension into a Qualified Recognised Overseas Pension Scheme (QROPS).
While the Budget announcements will undoubtedly have some kind of impact on the QROPS industry, George Osborne has yet to finish his consultations with pension experts, so no announcements are expected until later on in 2014.
As things currently stand though, for a great percentage of UK citizens living abroad, a QROPS represents an option which should be considered, and discussed with a qualified financial advisor. The uncertainty surrounding the future of UK pensions has made the entire industry nervous, and instability and fluctuations are caused by uncertainty and nerves.
