Picking the right expat pension means living wherever you like in the world while still minimising your tax and escaping retirement saving restrictions in the UK.
The key to saving tax is understanding the interaction between tax and residence as an expat.
For instance, as a British expat you can live in Russia, Switzerland or the USA and draw down payments from an expat Qualifying Recognised Overseas Pension Scheme (QROPS) safely ‘living’ in a tax friendly environment like Gibraltar or Malta.
Around 6,000 British expats live and work in Russia, although not all qualify to invest in a QROPS as they may not have broken their financial ties with the UK and may be still subject to British tax.
Switzerland has around 5,500 foreign nationals living as residents under special tax rules, but only a percentage are British.
So how does a QROPS work?
They are specialist expat pensions set up under rules overseen by HM Revenue & Customs in Britain. They are designed to make pension funds portable and more accessible to British expats or international workers with UK pension rights who retire overseas.
Take a Russia QROPS or Swiss QROPS – providing the investor is not tax resident in the UK, on retiring to Moscow or Geneva, the pension will pay out a lump sum of up to 30% of the fund tax free plus benefits in roubles or Swiss francs – or any other major currency.
The payments and fund remain outside the UK tax system – although they may be liable to income and IHT taxes in the country where the investor is resident.
Chris Wright, manager at a leading QROPS advisory firm, Qrops Investor – www.qropsinvestor.com, explains “The trick for expats is choosing their QROPS in the right third party country which has double taxation treaties with the country where they plan to retire.”
The reason a double taxation treaty is important is well-regulated financial centres like Malta are calling for QROPS retirement savers to prove they pay the appropriate income tax on their pension benefits – or call on them to submit tax returns.
QROPS benefits can include:
- Avoiding UK income tax – but paying at the rate where you live
- Investments grow free of taxes on dividends or capital gains
- No 55% tax on unspent QROPS funds if you die before drawing benefits
- Avoid currency exchange rate fluctuation by choosing pension payments in one of many major currencies
- Invest in shares, mutual funds, bonds, cash or commodities from a wider menu of providers and markets than those offered by UK pensions
Expats can live anywhere and set up a QROPS either in that country or a third party country.
Popular places to live for British expats are the USA, Canada, Spain and Australia.