QROPS And The Lifetime Allowance


One good reason for switching a UK pension fund to an offshore QROPS for expats is to avoid the lifetime allowance.

The lifetime allowance is the total amount anyone can save in a pension.

The cap is currently set at £1.03 million and rises in line with the annual cost of living each year.

Any transfer to a QROPS for an individual retirement saver who has not reached the age of 75 years old is tested against the lifetime allowance.

The test is the total value of any cash in the pension fund plus the market value of any assets held by the fund.


Any cash or assets that exceed the value of the lifetime allowance cap are taxed at 25%.

The money will be paid to HMRC by the pension provider transferring the fund out to a QROPS.

Another point to remember is if the overseas transfer charge and lifetime allowance penalty are both due, the overseas transfer charge amount does not decrease the value of the fund for the lifetime allowance test.

How to avoid breaching the lifetime allowance

The lifetime allowance problem for many retirement savers is that their fund will grow to break through the cap even though the increase in value is not imminent.

Moving to a QROPS solves the problem because once a fund has moved to the offshore pension, the fund can grow freely without going through a further lifetime allowance test.

For example, a saver with a £950,000 UK fund could expect the value to mature to more than the lifetime allowance.

Switching to a QROPS now means the fund would pass the lifetime allowance test, as the headroom is £80,000.

Lifetime allowance options without a QROPS

Once in the QROPS, the fund could grow to more than the lifetime allowance cap without any fear of a penalty falling due.

Transferring to a QROPS to avoid the lifetime allowance is perfectly legal, just a quirk of the rules that HMRC allows retirement savers to exploit.

The other options if a UK pension breaks through the lifetime allowance cap is paying the 25% tax penalty, taking pension benefits earlier than you may wish or stopping contributions to slow the rate of fund growth.

Download the Free Pension Transfer Guide

Expat Pension Transfers Guide

iExpats.com expert writers have created a simple guide to Expat Pension Transfers just for you.

Find out how you could save tax, increase growth and investment opportunities with this simple, no-nonsense guide that will introduce QROPS, SIPPs and QNUPS options and talk through the pros and cons. Download the free guide by following the link below

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