Tax Free Cash Is A Driver For Expats Switching To QROPS

Lisa Smith, BA (Hons), CeFA

The enhanced tax free lump sum offered by a Qualifying Recognised Overseas Pension Scheme (QROPS) is often the main driver behind a pension transfer for expats.

A QROPS has a 30% tax-free payment – offering a significant uptick on the cash payment of an onshore pension.

On a £100,000 pension pot the difference is an extra 20% tax free cash – £30,000 from a QROPS compared to £25,000 for a UK pension.

A point for expats to bear in mind is that the QROPS tax-free payment is often better than that paid by a final salary (direct benefit) pension.

The balancing act is whether taking the tax-free money outweighs the indexation advantages of a direct benefit pension.

QROPS advantages for expats

The other advantage of a direct benefit scheme is the 50% widow’s pension.

However, this has been all but wiped out by changes in inheritance tax laws that allow gifting 100% of an unspent fund to loved ones.

Any of the largest British employers are offering golden goodbyes to final salary pension scheme savers.

The amounts offered are huge. Some are reportedly up to 30 times pension payments.

With repeated government tinkering to pension rules, smaller lifetime allowances and doubts whether many company pension schemes have the wherewithal to pay as promised, now is a good time for expats to think about switching to a QROPS.

QROPS cash can be taken from the age of 55, so expats who want to pay down debt or have cash available to enjoy the healthier earlier years of the retirement need not go short.

Switching to a QROPS

More than 1,200 QROPS offshore pensions are based in 42 financial centres worldwide.

All are structured around the same HM Revenue and Customs (HMRC) blueprint, but some offer some extra bells and whistles.

A few financial centres will provide QROPS and allow expats to live where they wish in the world. This is useful if the country where and expat lives does not have a local QROPS.

These schemes are popular in places like Thailand and The Philippines where many oil and gas contractors are based who regularly live and work in other countries for long periods.

These pensions are popular with expats setting up QROPS in Gibraltar, the Isle of Man and Malta.

Pension freedoms allowing expats to access their pension cash to spend as and when they wish are available from Malta.

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.

Leave a Comment