It seems inconceivable that Her Majesty’s Revenue and Customs would allow non-residents to take their UK pensions offshore without imposing a tax charge. But that is exactly what QROPS are designed for.
Qualifying Recognised Overseas Pension Schemes have been around since 2006, although approved offshore investments have been around for longer than that.
HRMC will permit members of UK pension schemes to transfer their pension assets into a limited number of foreign schemes that have been “recognised”. Such recognition results in being added to a master list of foreign pensions that have been deemed to be adequately regulated and taxed as pensions. Some pension schemes are approved but not added to this list, because they want to remain confidential.
When a scheme has been added to the list this does not mean that the UK government guarantee the scheme, or that the scheme is being promoted in any way. There are a mixture of high and low risk arrangements available, and the fact that they have made it onto the list does not negate the need for your own due diligence.
How do they work?
For the first five years after the pension transfer, HMRC will receive a report of what happens with the scheme. So they learn whether you make any withdrawals or further deposits, and they get to know if you transfer your fund again into a different scheme.
After those five years have elapsed, HMRC no longer have an interest in the scheme and your pension arrangements are confidential from them. However, you will have to deal with the authorities in your country of residence and QROPS host country, if different.
The five years figure is also important because you must continue to be non-resident during that time. If you regain your British residency, you may face a tax charge of up to 55% of the scheme. This rule is interpreted strictly, as the penalty applied in full no matter how long you have been away. So staying away for 1 year and staying away for 4 and a half years are treated as equally “wrong”.
What does a QROPS look like?
The beauty of QROPS is their variety. Given that the QROPS shopper has access to over a thousand different schemes, you can choose from almost any major international finance house. A larger variety of underlying assets is available, as are a diverse range of tax treatments and withdrawal permissions.
The majority of QROP.org buy a scheme that is off the peg, but you can have your own bespoke QROPS designed for you.