If you hold any number of UK pension plans and now live in the UAE, you may have considered transferring your scheme(s) into either a SIPP or QROPS.
A SIPP, or Self-Invested Personal Pension, gives you the autonomy to manage your wealth by consolidating a number of UK pensions into one structure, which can then be invested in a much wider range of asset classes.
As they are UK-based, they are favourable for individuals currently living (or planning to live) abroad who then wish to return to the UK. In particular if you are still classed as a British taxpayer, and consider yourself a temporary expat, a SIPP may be the better option as you can receive tax breaks on your pension contributions.
When is a QROPS the best option?
However, if you been out of the UK for a long time, or do not intend to return in the near future, HMRC-recognised QROPS (i.e. Qualified Recognised Overseas Pension Schemes) hold all the same investment benefits of SIPPs – but allow your pension to be based abroad. And after five years, your fund follows the pension rules of the country where you are based.
This can be much more preferable with regards to tax and flexibility, and, for example, a QROPS can be used to purchase bonds, futures, shares, gilts, deposits and even cash – and then avoid the UK’s capital gains and inheritance taxes of up to 40% too.
Being based abroad allows for a number of additional benefits, such as:
- Ability to take up to 30% of your fund as a lump sum.
- Receive your pension income in the currency of your choice.
- Consolidate multiple pensions into one efficient structure and, as you will be investing a much larger, aggregated sum, witness your successful investments increase by larger increments.
- If you base your pension in a QROPS jurisdiction with a suitable direct tax agreement – such as Malta – this growth would increase 100% tax free, and you do not face a tax charge on your income.
- Avoid UK’s inheritance tax – which can be as high as 55% of your fund – and potentially pass on your wealth free from tax at source.
Lastly, if you leave your pension in the UK – either within a private pension or a SIPP – and your fund grows over the Lifetime Allowance (which will be reduced to GBP 1.25 million in April 2014), you will be liable to pay 55% in tax on any amount over the allowance.
By transferring your fund into a QROPS, you will never have to pay this tax.
Consequently by utilising a QROPS, you can not only protect your pension pot, but grow it and pass it on as you see fit.
The next step
Deciding whether a QROPS or a SIPP is the best option for you ultimately depends on your unique circumstances.
Therefore it is important you seek regulated pension advice from an independent financial advisor – specifically with experience in pension transfers for those living in Dubai or indeed the wider UAE – when deciding whether a QROPS is right for you.
In addition, please feel free to check back on iExpats for the second article (2/2), which will closely examine how your future plans can affect your funds and offer analysis of the optimum QROPS jurisdiction for Dubai residents.
You may not face an income tax in Malta, but you would likely face a tax on your income in the country you reside. Sometimes Gibraltar, NZ or IOM or another jurisdiction may be more favourable, that is why it is important to contact QROPS SPECIALISTS.