Yes, it is true – a Qualifying Recognised Overseas Pension Scheme (QROPS) can pay up to a 30% tax-free lump sum to British expats retired abroad.
The standard tax-free payment for a UK onshore pension when a saver retires is 25% of the fund value, but this is boosted up to 30% for many QROPS.
This is just one of the financial benefits of a QROPS pension for expat retirement savers.
Just think of the tax-free payment like this.
Two British expats are relaxing on a beach in Thailand. One has transferred a UK pension into a QROPS and the other has a UK pension.
Both have £150,000 funds in their pensions.
Cash bonus for switching to a QROPS
The one with a QROPS picks up £45,000 tax-free as 30% of the fund value.
The other receives £37,500 as 25% paid tax-free.
The only difference besides the cash bonus is one expat switched to a QROPS when moving overseas and the other did not.
HM Revenue and Customs (HMRC) QROPS rules state that providers have to ring-fence 70% of the fund to pay a pension during retirement, which leaves the balance to pay as a tax-free lump sum.
Not all QROPS pay a 30% tax-free lump sum, but those in the popular financial centres of the Isle of Man, Malta and Gibraltar do.
These financial centres are also among those that allow a QROPS saver to live where they like in the world – except the UK.
Portable QROPS for expats on the move
These portable pensions allow expats to move about if they wish. That makes them ideal for expats on assignment who are not retiring back to the UK but are unsure where in the world they may end up.
Portable QROPS are also an option for retirement savers who want to transfer their money into a QROPS but live in a country without a provider. Close to 45 countries have QROPS providers, but not all offer portable pensions.
Besides paying a 30% tax-free lump sum to British expats living permanently abroad, QROPS can also offer the same benefit to overseas visitors who live outside the UK while having cash frozen in UK pensions.