There is a growing trend for ‘wealth managers’ to target people with dubious schemes to help people concerned over the future value of their pensions and others looking at living abroad.
With an increasing tax burden on pension pots and a drop in the value of annuities, more people are looking at moving abroad for better weather and a chance to enjoy their pensions tax-free.
People can do this quite legitimately with a product designed specifically for expats – a Qualifying Recognised Overseas Pensions Scheme (QROPS).
Essentially, there is no UK tax to pay if the person and pension pot stays abroad for five full years.
But this ability to move a pension pot abroad is growing increasingly attractive to what some have termed ‘offshore pension sharks’.
This new breed of pension advisor is deliberately targeting wealthy people offering their services to move the pension using QROPS.
Tough tax rules
The idea is to move the pension, cash it in and receive the full amount free of any tax (minus the wealth manager’s charges, obviously).
However, HM Revenue and Customs (HMRC) is constantly reviewing the schemes that are eligible under QROPS and those that aren’t.
HMRC acts swiftly when it realises that a scheme might be used for tax mitigation and will close it down.
And the recent budget saw the Chancellor George Osborne announced new rules which will see schemes reporting to HMRC regularly to prove they are QROPS compliant.
But the advice of some ‘wealth managers’ to unlock a pension pot lump sum early could prove costly in high charges, increased risk and the potential for legal action.
And the chance that HMRC may take a closer look at your financial arrangements if the ‘recommended’ move falls foul of UK tax rules.
Reputable QROPS advice
The key piece of advice to utilising QROPS without endangering your pension pot when you move it offshore is that you should move out of the UK with it.
The rules have tightened up since QROPS were introduced in April 2006 by HMRC – mainly to target those who do not move to another country when their UK pension moves overseas.
And the scheme you move the pot to must be on HMRC’s approved list of QROPS.
If the scheme being recommended by a wealth manager isn’t listed, then you can almost certainly guarantee a potential tax problem. But remember the PDF that can be downloaded from the HMRC website, doesn’t contain every scheme, as some have requested not to be listed.
As with most financial advice, it pays to use the services of someone who is experienced and reputable when it comes to moving a pension pot overseas via QROPS.
The alternative could end up as a very expensive mistake.
If you would like to be put in touch with a qualified financial adviser, please contact us via the contact form here for a referral.