What happens to any money left in a QROPS pension when you die is an important question for many expats.
QROPS are offshore pensions for British expats and individuals from abroad who have worked in the UK but now live elsewhere in the world.
The funds come from UK pensions that are transferred into the offshore schemes.
The best way to avoid tax on an unspent QROPS pension is to nominate who inherits the money when you die.
This is typically done by completing a form for filing with the QROPS provider.
Looking out for the tax
Any tax in the UK is only paid if the person inheriting the pot is a UK tax resident.
Otherwise, the fund is subject to inheritance tax rules in the country where the retirement saver had their main home.
Do not withdraw unspent cash and put it in the bank – if you do it can become part of your estate and subject to inheritance taxes.
The tax depends on several factors:
- Your age when you die – under or over 75 years old
- How the money is paid
- Where you and your beneficiaries live
No tax is paid if a UK relative takes the fund as a lump sum takes an annuity or money from a fund in drawdown arrangement set up after April 6, 2015 if you die before the age of 75, otherwise income tax must be deducted by the provider
Tax might also be due if the beneficiary draws money from the pension more than two years after your death.
Pensions are not considered part of your net wealth in the UK after you die, and are excluded from any inheritance tax calculations.
Foreign inheritance laws may not tax-treat QROPS pension funds in the same way as the UK.
Always take UK and local estate planning advice to make sure you have avoided tax pitfalls in Britain and the country where you now have your main home.
It’s also wise to make a will in each country where you have wealth, such as bank accounts, investments or property, to make sure they end up with the loved ones and relatives you intended to inherit.