Expats who want to invest in commercial property via a pension fund but are worried about breaching the lifetime allowance can consider a Qualifying Recognised Overseas Pension Scheme (QROPS) as one of their options.
While QROPS transfers are tested against the lifetime allowance when they are moved out of the UK, once they are offshore the problem no longer applies.
This is a big advantage to commercial property investors who limbo under the limits in fear of a tax charges against their retirement savings.
The lifetime allowance plunged from £1.8 million to £1.5 million in 2012 and is set to lower again to £1.25 million in the coming tax year.
QROPS allow expats to move offshore and take their UK pensions with them – and are then unaffected by the lifetime limit as the fund grows or further contributions are added.
Commercial property QROPS
Admittedly, investors have to weigh up the pros and cons of the loss of tax relief against fund growth, so QROPS may not be the financial solution for everyone.
Once the move offshore is completed, adding commercial property to the QROPS is not a problem, as long as an investment case is proved.
In this respect, a QROPS works in much the same way as an onshore self-invested pension plan (SiPP).
Commercial property in SiPPs includes recording studios in the Caribbean to marinas in the South of France to an airport on the Isle of Wight – and there’s no reason investors can’t indulge in similar flights of fancy for their QROPS.
Property developer Tony Fowler and a business partner paid £635,000 for an aerodrome on the Isle of Wight, off the south coast of England.
QROPS and the lifetime allowance
The deal was completed through a SiPP, which earns rents, commissions and other fees from buildings on the site, aircraft storage and landing charges and a café.
Strict HM Revenue and Customs rules look at pensions to ensure retirement savers receive no benefit from their investment. In the case of the airport, the partners are keen flyers who pay the same fees for landing and storage as other customers.
For QROPS investors looking at more unusual commercial investments, the same rules apply, but the lifetime allowance limits are bypassed.
To set up a QROPS, the investor must be non-resident in the UK, which cuts out a SiPP as a realistic pension option as being an expat wipes out the tax benefits which are only available to British residents.
Expats who still have ties to the UK rather than those who have moved permanently abroad cannot use a QROPS, but can still take the tax benefits from a SiPP, although they are lumbered with the dreaded lifetime allowance problem.