Should I transfer my pension to a QROPS?

If you are moving or are already residing abroad, with no intention of returning to the UK, then a QROPS may well be the best course of action.

However, if you have no intention of residing abroad but are simply trying to circumvent the rules that would apply to a UK registered pension, then The Overseas Pension is not for you.

What happens if I transfer to an international pension that isn’t a QROPS?

There are serious tax implications if the scheme turns out not to be a QROPS, including unauthorized member payment and surcharge, as well as a scheme sanction charge.

The scheme sanction charge is 40% of the transfer value payable by the pension scheme. The unauthorised payments surcharge is 15% of the transfer value and would be payable by the individual.

Does it matter where the QROPs is established?

The primary jurisdictions that operate QROPS open to non-residents are Guernsey, Isle of Man, Ireland and New Zealand.

Guernsey does not withhold taxes on investment growth or benefits paid from pensions where the member is not a resident of Guernsey and has not received tax relief on contributions made whilst resident of Guernsey.

Other jurisdictions such as Isle of Man, New Zealand and Ireland may impose tax on income or death benefits or investment growth. These taxes may not be recoverable and you may not be able to offset them against tax charges made in your own country of residence.

What happens if I return to the UK?

If you return to the UK then the transfer will have a neutral affect as UK pension regulations will apply to the QROPS. Therefore a transfer should usually only be considered by those who intend to live outside the UK permanently.

Can I transfer my UK pension when benefits are already in payment?

It is possible to transfer a pension where benefits are in payment provided that they are not from an annuity or certain company pension schemes.

Can I invest in residential property?

Direct investment in residential property is not permitted with UK tax relieved pension funds regardless of your country of residence or the period of time that an individual has been non-UK tax resident.

Residential property investment is permitted with non-UK tax relieved funds or through a genuinely diverse commercial vehicle.

Should I transfer protected rights benefits to a QROPS?

It is possible to transfer protected rights to a QROPS. However, you will forfeit the protection afforded by the UK pension regulations.

We recommend that you seek advice from a suitably qualified financial adviser before making your decision to transfer.

Can my existing UK pension transfer investments "in specie" rather than selling
them and transferring cash to the QROPS?

It is possible for a QROPS to receive assets transferred from a UK scheme. However, both the UK pension and QROPS must be willing and able to complete the transaction.

Is a transfer to a QROPS a Benefit Crystallisation Event (BCE)?

Uncrystalised

Any transfer of uncrystalised pension rights before age 75 will be a benefit crystallisation event.

If any of the transfer is above the available lifetime allowance the excess will be taxed at 25%. If the pension rights are protected then the lifetime allowance charge should not apply.

Crystallised

Pensions in payment (pre and post 75) can be transferred to a QROPS.

Transferring Unsecured Pension (USP) to QROPS will be a BCE if the drawdown commenced after 05.04.06. The lifetime allowance test is applied in the same way as conversion to an annuity or reaching 75 and converting to ASP.

Transferring USP to QROPS is not a BCE if drawdown commenced before 05.04.06.

Transferring ASP to QROPS is not a BCE.

Notes

A QROPS is not subject to a lifetime allowance.
Further information: http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm11100030.htm

Can I transfer commercial property held by a UK pension?

A UK pension can make an in specie transfer of commercial property to a The Overseas Pension - QROPS. We have been advised that no stamp duty is payable on the transaction unless the property is mortgaged and in which case stamp duty is payable on the value of the debt.

When the property has been transferred all of the rental income less any allowable expenses would be taxed at 20% when held by an offshore company.

Any capital gains would continue to be tax-free.

What level of income can be paid from a The Overseas Pension - QROPS?

If the member has been UK tax resident in any of the previous 5 years then the income would be subject to the same restrictions as in the UK i.e. income restricted by the G.A.D. calculation or Scheme Pension rules. Scheme Pension rules would give a higher income for individuals in poor health and/ or older individuals.

If the member was not UK tax resident in any of the previous 5 years then the income would be in line with Guernsey rules. Guernsey rules allow for the actuarial calculation of income thus members in poor health, who are older and/ or have greater risk tolerance, may be able to take a relatively high level of income.

Can a US resident transfer a UK pension to a The Overseas Pension - QROPS?

The trustees would consider the transfer if the client has taken specific US tax advice and the opinion was favourable. The client would need to share the written advice with the trustees.

We are aware of developments to structure a QROPS that is compatible with US tax laws and we hope to have further information available in the near future.

How is The Overseas Pension taxed?

Guernsey does not tax non-Guernsey and non-Jersey residents, thus income payments and pension commencement lump sum benefits are paid without the deduction of tax.

However, it is imperative that tax advice is taken in your client’s country or intended country of residence. For example: Australia operates a system that favours smaller transfers to be made to a local scheme but larger transfers may be more complicated.

Working with Professional Advisers

The Overseas Pension only works with professional advisers. Pension transfers are a specialist area of financial planning: professional advice, in our opinion, is essential.

We work with regulated advisers or where regulation is not available, with advisers who demonstrate through experience and or reference that they can provide suitable guidance.

Fairbairn Trust Company Ltd already work with many advisers in various countries and jurisdictions providing fiduciary services.