The 2004 European Union Freedom of Movement of Capital Act has given anyone, who owns a Pension Fund in an EU country the right to transfer this fund overseas, should the individual decide to retire in a different country from the original pension scheme.
The United Kingdom Government launched their version of these offshore pensions, Qualified Recognised Overseas Pension Schemes (QROPS), on 6 April 2006.
There are many potential advantages in moving a pension fund offshore and the primary benefits include:
- You may move your pension offshore, even if you are a UK resident, providing you intend to retire abroad.
- The residual fund can be passed to your spouse on death, effectively giving the surviving spouse 100% of the pension income (unlike the 50% a company scheme will give).
- Furthermore, when the surviving spouse passes away, the residual funds may be inherited by the children or grand children, free of inheritance tax. In a company scheme or with a purchased annuity the fund will die with you.
- With a QROPS, there is no obligation to purchase an Annuity before age 75. An Annuity is a guaranteed fixed income investment that has no residual value when you die. With a UK pension you must purchase an annuity by age 75 or suffer heavy taxation.
- The fund can purchase income-generating domestic property, unlike UK pensions.
- 25% of the fund can be taken tax free at retirement, the same as most UK pension plans.
- The fund can be held in foreign currencies.
There are now many approved QROPS Trusts, globally in many different jurisdictions and Guernsey is one such jurisdiction.
Guernsey is a highly-regulated territory with an official “Whitelist” categorisation from the G20 meeting in April 2009. Also Guernsey has a proud reputation of good practice in Financial services, with the advantage of having had a long established open dialogue with Her Majesty’s Revenue & Customs (HMRC).
This means that Guernsey is recognised as a compliant territory for HMRC and therefore satisfies the highest standards of regulation.
For the first 5 years that an individual has expatriate status, it is the duty of the QROPS Trustees to report any income taken from the QROPS and this will be subject to UK tax at your marginal rate.
After 5 years, the QROPS Trustees have no obligation to report your pension income to HMRC, however, assuming that your QROPS funds are held in an offshore Personal Portfolio Bond (PPB), you will be subject to the taxation of your country of residence on this type of investment.
Anyone who is retiring overseas should have a professional pension transfer analysis undertaken to see what the potential advantages and disadvantages of QROPS are to them.
MBMG International will provide this service without cost or obligation to the individual.