Where are you planning to retire to? As long as it is not the United Kingdom, getting a QROPS could be a great way to reduce your tax bill in retirement.
Qualifying Recognised Overseas Pension Scheme are those that have been approved as foreign schemes by HMRC. To be a QROPS, the scheme must be regulated and taxed as a pension in its own country, but must also be in a place with a Double Taxation Agreement with the United Kingdom.
Why do QROPS destinations need a DTA?
The requirement for a DTA is because the QROPS will report back to HMRC on your pension for five years after the transfer has taken place. Accordingly, HMRC will know about what takes place in your pension, including transfers and investment gains.
However, after those five years are up (and assuming that you are still a non-resident for tax purposes), HMRC has nothing more to do with your pension.
If a QROPS must be taxed as a pension, how is it better than a UK one?
The HMRC requirement merely means that the QROPS must be treated in the same way as other pensions under the country’s tax regime. So if pensions are taxed, then so must the QROPS. However, the job of a QROPS adviser is to find a solution to your retirement planning needs that is more advantageous than what you already have lined up. Accordingly, you may be able to find a scheme in a country that does not tax pensions at all, or does not tax them after the member has reached a certain age.
What about inheritance tax?
Planning your pension may not just involve thinking about your own needs – you may also take into account the needs of your loved ones. Happily, it has recently been confirmed by HMRC that QROPS are exempt from UK IHT. So as long as your QROPS adviser finds you a scheme that is exempt or neutral from tax in its own country, then it may be possible to pass your pension assets directly on to your heirs.
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