British expats with retirement savings wrapped in the Qualifying Recognised Overseas Pension Scheme (QROPS) need to review their financial plans.
Over 100,000 expats have switched their UK pension savings offshore into a QROPS, but many may find their money is now in a delisted scheme following rule changes by the UK government that came into force this week.
More than 400 QROPS were delisted and nine financial centres lost their QROPS status because of the update.
Expats should review their pension arrangements to find out if their pensions are still QROPS – and if not, ask providers how their savings and benefits are tax treated locally.
Guernsey had the most delisted QROPS, with 100 schemes delisted. Other centres suffering large losses included Australia (89); The Netherlands (44); Ireland (38); Jersey (36); Guernsey (20) and the Isle of Man (15).
Member payment confusion
The financial centres losing QROPS status were the Czech Republic; Greece; Iceland; Jamaica; Kosovo; Portugal; Sri Lanka; Sweden and Turkey.
A full list of QROPS centres and listed pensions is available from HM Revenue and Customs (HMRC).
“HMRC can’t guarantee these are QROPS or that any transfers to them will be free of UK tax. It’s the member’s responsibility to find out if they should pay tax on any transfer of pension savings,” said HMRC.
One of the big confusions is member payments.
If money is paid to a UK resident or someone deemed UK resident in one of the past 10 tax years from an uncrystallised QROPS fund, the benefit is taxable.
QROPS tax changes for UK residents
But income drawdown is not a member payment, so is not taxable in the UK.
The new rules also abolish the rule declaring 90% of benefits paid to UK residents from a QROPS as taxable. Now the entire payment is taxed.
Foreign service relief on lump sums paid from overseas employer schemes are no longer tax-free.
Now, they are taxed in the same way as those paid by UK pensions.
Along with the 25% transfer tax on certain payments between UK pensions and QROPS and between QROPS schemes, expats considering shifting their pension certain payments between UK pensions and QROPS and between QROPS schemes, expats considering shifting their pension savings offshore should take professional advice.