Osborne Ready To Tax Expat Private Pensions

Chancellor George Osborne is making quite clear to expats that they are either in or out of the UK tax system and cannot expect to rely on financial favours from the British government any longer.

Hot on the heels of Osborne’s confirmation that capital gains tax is on the way for non-residents, he has also revealed a consultation is coming to look at scrapping the personal income tax allowance for expats.

Getting rid of the personal allowance means the £10,000 a year earnings limit before paying income tax goes for expats.

So, any expat couple drawing pension income in the UK – including the state pension – will pay £2,000 income tax each.

Are you really an expat?

Although details of the consultation are awaited and are expected to be published alongside the Finance Bill 2014 on March 27, 2014, who receives the allowance will depend on the definition of an expat.

In conversation, an expat is anyone living or working overseas, but the tax definition is different.

For tax purposes, an expat is someone who is no longer a UK resident, which means they have broken their social and financial ties with Britain and reside and pay tax in another country.

Although Osborne may have liberated pensions, he is still determined to collect for the Treasury.

“To ensure the UK personal allowance remains well targeted, the government intends to consult on whether and how the allowance could be restricted to UK residents and those living overseas who have strong economic connections in the UK, as is the case in many other countries, including most of the European Union,” said Osborne.

QROPS solution

Avoiding the personal allowance tax trap could be as straightforward as switching an onshore pension into an offshore Qualifying Recognised Overseas Pension Schemes (QROPS).

QROPS investors pay income tax on their pension payments based on where they are tax resident, not at UK tax rates, and these can vary considerably from country to country.

For instance, Gibraltar residents pay income tax on pension income at 2.5% and pick up a 30% tax-free pension lump sum payment compared with the standard 25% payment onshore.

Any QROPS payments can be dropped straight into a personal bank account without foreign exchange worries as providers pay the benefits in a range of major currencies, not just Sterling.

Many providers will also take in small pot transfers of less than £75,000 on QROPS ‘lite’ terms, which is good news for many expat pension investors who have an average pot of around £38,000.

3 thoughts on “Osborne Ready To Tax Expat Private Pensions”

  1. I trust the new policy will include all expats and not just those who have frozen pensions.Should be interesting to see the reaction from the expats who still have a vote.

  2. Cameron is like a thief in the night, Creeps in while he thinks one is not looking, and steals whatever he can find. Well Mr we are looking and we note that you are not satisfied by stealing our rightful increases, now you want to take us to the cleaners. YOU AND YOUR CRONIES ARE BRITAINS SHAME, and the sooner you are all out of office the better for the British citizens.

  3. The rules are much simpler and you are freer onshore in the UK than offshore. Many Qrops should consider transferring back to UK and use an online Sipp then take advantage of the tax rules that apply to the individual rather than the selective bias examples used in the column. What the sales industry of Qrops is terrified of is that the tap has been turned off and they are desperate to provide angles to point out how they are better when in fact they are vastly inferior to the new situation in the UK.


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