Retirement

Moving To An Offshore Pension For Expats

Expats enjoying the weather, culture and lifestyle in a new country can make more of their retirement savings by moving the money to an offshore pension.

Two popular offshore pensions for expats are an international SIPP and a QROPS. Both have different tax and investment rules depending on an expat’s tax residence.

Read on to find out which expat pension is best for you and how to transfer your pension offshore.

International SIPPs For Expats

SIPP is short for self-invested personal pension and works like a souped-up place to keep retirement savings.

Despite the title, an international SIPP works similarly to a UK SIPP. The international SIPP also carries the same tax breaks for an expat who is still a British tax resident as an onshore pension.

SIPP points to consider:

  • Money paid in topped up at the highest rate an expat pays tax. For example, a higher rate (40 per cent) taxpayer wanting to save £1,000 a month contributes £600, and the taxman adds £400.
  • Expats can draw pension cash from the age of 55
  • Pension drawings are taxed
  • Expats can manage their investments or appoint an adviser to do the job
  • The most an expat can save in an international SIPP is the lifetime allowance of £1.0731 million for 2021-22, frozen until 2025-26
  • Money in an international SIPP counts towards the lifetime allowance
  • Transfers into a SIPP are free of tax from QROPS or other UK pensions
  • Expats who are tax residents outside the UK lose the tax benefits of an international SIPP

Starting An International SIPP

Starting an International SIPP is easy – just with an independent financial adviser for guidance about your best pension.

Investments in overseas pensions are often by offshore bonds, which may have little in the way of tax benefits for expats.

Transferring funds from another pension

If you already have one or more pensions or a QROPS, you can consolidate the funds into an international SIPP – including funds in most onshore personal or workplace schemes.

You cannot transfer the State Pension or some civil service or public sector schemes.

Although a pension is described as an international SIPP often the product is similar to a UK SIPP and based in Britain.

To transfer pension funds into a SIPP, speak to an IFA who has experience in overseas pension transfers.

Once you have decided which scheme you would like to transfer to, ask your current provider for a cash equivalent transfer value (CETV) report. This report sets the value of the fund for the transfer. If you have more than one pension, you need a CETV for each scheme.

If the funds are worth £30,000 or more, you must discuss the move with an IFA or take guidance from the government’s MoneyHelper website.

Where can expats invest SIPP savings?

Each international SIPP provider will have a list of funds, shares and investment trusts for investors to choose from. Some online platforms have thousands of choices, while others limit the number of options. The fund can hold assets and currencies suitable for expat clients.

Which expats should consider an international SIPP?

  • Expats living beyond the European Economic Area (EEA).
  • Expats on assignment remaining UK tax resident, so they can continue to collect pension tax breaks
  • Expats who are tax resident outside the EEA but not in a country hosting a QROPS to avoid the QROPS overseas transfer charge
  • Overseas workers with UK pension savings who now live abroad

QROPS Offshore Pensions For Expats

QROPS is short for the Qualifying Recognised Overseas Pension Scheme supervised by HM Revenue & Customs.

The scheme has run since April 6, 2006. Since then, HMRC has seen more than 136,000 transfers in to QROPS worth more than £12.3 billion, The average transfer is £95,294.

While it’s true many QROPS transfers are worth more than international SIPP transfers, the reason is mainly that QROPS charges are higher, pricing smaller funds out of making the move.

QROPS points to consider:

  • Providing pension savings total less than the lifetime allowance (LTA) cap of £1.0731 million when transferred into a QROPS, they can grow free of LTA savings limits once in a QROPS
  • Savings in a QROPS are not included in the LTA calculation
  • QROPS withdrawals are taxed according to the rules of the place where an expat is tax resident
  • QROPS savers can access their pension cash from the age of 55 years old
  • Transfers to some QROPS outside the EEA may be subject to an overseas transfer charge equivalent to 25% of the transferred fund
  • Expats can manage their investments or appoint an adviser to do the job
  • Pension transfers into a QROPS are free of tax

Starting a QROPS

Starting a QROPS runs through the same process as setting up an international SIPP, with one important difference.

Retirement savers must not transfer any pension cash to a scheme not listed on the HMRC QROPS List. The list is published online once a fortnight or so. Moving money to an unlisted scheme is classed as an unauthorised pension transfer and is liable for a tax penalty.

The retirement saver is responsible for the QROPS List check even if an IFA sets upm the transfer.

Transferring funds from another QROPS or pension

QROPS can accept transfers from UK onshore pensions and other QROPS. There are no maximum or minimum levels for fund transfers.

The expat offshore pensions are available in 28 countries, according to the latest QROPS List.

Fifteen of these countries are within the EEA. Retirement savers can live in any EEA country while paying money into a QROPS hosted in another EEA country without triggering the overseas transfer charge.

The rest are outside the EEA. Savers must live in the country where their QROPS is based. If not, for example, a saver lives in Dubai but has a QROPS in the Isle of Man, the overseas transfer charge applies.

Where can expats invest in a QROPS?

QROPS have a much wider range of investment opportunities than a standard UK pension in a variety of markets, currencies and commodities. They also payout in several major currencies.

Which expats should consider a QROPS?

  • British expats who are no longer tax resident in the UK
  • Foreign workers with UK pension savings who now live permanently away from the UK
  • Expats with lifetime savings approaching or exceeding the LTA

Which Offshore Pension Is Best For Expats?

Pensions are personal and should be tailored to each expat’s financial goals. Choosing between an international SIPP and a QROPS is not so much which is best, but which is most suitable to match the needs of the retirement saver.

The best way to pick between a SIPP and QROPS is to forget the cost and look at the features and benefits

Am I An Expat If I Live Overseas?

Tax and financial law has no definition for an expat, so working out if you qualify for a QROPS is sometimes complicated. The first step for your IFA is establishing your residence status for tax.

Once you know if you are a UK tax resident or not, the choice of saving and investment products slips into place.

The rule of thumb is if you are working on an assignment for a couple of years but keep your UK home, driving licence and bank accounts etc intending to return at the end of your contract, then you are a UK tax resident.

However, if you pay tax in the country where you live and have cut your personal ties with Britain, then you are likely an expat.

HMRC uses the Statutory Residence Test to determine expat status.

Moving home with an offshore pension

A quirky rule can get expats into trouble if they move home while saving into a QROPS.

For instance, if you currently live in France and have a QROPS in Ireland, that’s OK. But if you move to Dubai, you become liable for the overseas transfer charge. If you have an international SIPP, you are not restricted to where you can live and no tax charges are levied wherever you move.

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