Malta Confirms 30% Tax-Free QROPS Pay Outs

Malta Qualifying Recognised Overseas Pension Scheme (QROPS) rules have been changed to confirm savers will receive a 30% tax free lump sum on retirement.

The government has changed pension rules on the island to remove any doubts over how much of a pension could be paid without tax.

The move follows months of behind the scenes talks with leading QROPS providers on the Mediterranean island in a bid to clarify the rules.

At one stage, the island almost had a two-speed QROPS industry, with some providers arguing rules allowed them to pay a 30% tax-free lump sum, while others claimed they restricted the lump sum to 25% of the fund value.

QROPS providers in many of the 45 financial centres offering the pensions have allowed retirement savers to take 30% tax-free lump sum for several years.

How the 70/30 rule works

The benefit is seen as one of several advantages of the pensions for expats as keeping a UK pension limits the tax-free payment to 25% of the fund value.

An expat retirement saver with a QROPS fund valued at £250,000 in Malta will now receive a £75,000 tax-free lump sum, while an expat with a UK based pension will get £62,500.

Much of the confusion about how much of a tax-free lump sum payment a QROPS can offer comes from the 70/30 rule.

This UK rule clearly states that QROPS providers outside the European Union must retain a minimum of 70% of retirement savings to provide pension payments.

Brexit impact on EU QROPS

Some jurisdictions took this to mean that the remaining 30% of the fund could be offered as a single tax-free payment – something HM Revenue and Customs (HMRC) has never objected to.

One issue for the Brexit negotiations is how leaving the EU will affect lump sum payments from QROPS.

Rules split QROPS pensions into two categories – those in the EU and those outside. But after Brexit, Britain will be outside the EU and will no longer need to keep the distinction.

Policymakers will have to consider how Brexit will affect the 70/30 rule – will it apply to all QROPS or will the EU and non-EU categories remain?

Further QROPS Information and Guidance

For more information about QROPS and the benefits it provides, download the iExpats QROPS Guide or complete the Get Advice form.

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