It’s not a cheery question, but one international financial advisers are often asked by their Qualifying Recognised Overseas Pension Scheme (QROPS) clients.
The answer depends on several factors and understanding how they interact can help retirement savers and pensioners with their end of life planning.
British expats have two key pension choices –
- Leaving the UK and retaining their workplace or private pension with a UK provider
- Opting to switch the funds to a QROPS
These are not the only options, but are generally the two most suitable for most British expats.
Dealing with the question for expats with a QROPS is more straightforward.
The nature of the scheme means the pension fund is outside of the pension holder’s estate for the purposes of UK inheritance tax (IHT), so providing the beneficiaries receiving any unused funds are not tax resident in Britain, they get to keep the money.
Of course, IHT rules may apply in the country where they are tax resident.
For British expats with a pension still hosted in the UK, the rules are different and depend on if any benefits have been drawn down or whether an annuity has been bought.
If the pension remains untouched when the retirement saver reaches 75 years old, HMRC will apply a tax charge of 55% and the balance can be passed to any beneficiaries.
This tax charge does not apply to a QROPS – but any beneficiaries living in the UK may have to pay tax on the bequest.
If the UK fund has been used to buy an annuity, then the annuity generally dies with the holder.
QROPS and estate planning
This is not always the case, as some annuities will make a widow’s payment and at extra cost, the money can go into a joint annuity, which dies with second partner.
Another problem is UK pension and IHT rules are in a continued state of flux, with governments regularly tinkering with limits and allowances.
QROPS are outside the scope of these UK rules as they are not UK registered pensions even though they are monitored by HMRC.
Another issue to consider for expats is different wills for each country where they may have assets.
If you are a British expat or are considering moving overseas, do not forget to take professional wills and estate planning advice from a lawyer in the UK, the country where you intend to live and in the country hosting your QROPS or other assets.