Unravelling the Mystery of Offshore Pensions for British Expats

Post by Ayo

Millions of sun-seeking Brits have escaped blighty over the last decade in order to make a new life in sunnier climes. Many have simply upped sticks and retired in tropical paradises; others have left for employment. However, far too many of those people have failed to take their pension arrangements seriously. Making the decision to move abroad places British expats outside of the welfare state’s safety net, and that can be a dangerous place to be when a pension is being hit with a tax burden from two different countries. However, HMRC has made provisions for the lucky few who do make a new life in the sun; unfortunately, getting people to fully understand their option is another matter entirely. There are three major offshore pension schemes recognised by the British government, but which of them deliver the most attractive benefits?

A Qualifying Recognised Overseas Pension Scheme

A QROPS pension allows people to transfer their pension funds from a UK provider to one either in the country of residence or, more commonly, into one of the world’s major QROPS jurisdictions. Taking this action will usually take away all income tax and capital gains tax liabilities to HMRC, but fund-holders may still be liable for local taxes. As well as the obvious tax-savings, fund-holders can also manage their pensions in the local currency – essential in budgeting for the future. UK-based pension funds are limited to investment opportunities inside the UK or the EU; however, this type of offshore pension can take advantage of some fantastic opportunities across Asia and North America. Anyone living abroad or planning to do so within the next six months is eligible to apply for a QROPS transfer, but applicants must be between the ages of 18 and 75.

A Qualifying Non-UK Pension Scheme

In many ways, a QNUPS pension is almost identical to its more popular counterpart, but it was introduced to tackle the problem of inheritance tax being imposed on remaining pension funds upon the holder’s death – in some cases 55 percent! The only significant difference is that a QNUPS scheme does not require a double taxation treaty between the jurisdiction in which the pension is managed and the UK government – a ruling that applies to countries outside the EU as well.

A Self-Invested Personal Pension

The SIPP pension was the original offshore pension scheme for British expats, and it is aimed at putting fund-holders in control of exactly where their funds are invested. Although this may seem like a significant advantage over other offshore schemes, fund-holders can still be liable for UK taxes, the minimum age for draw-down is 55 and there is a cap on the lifetime allowance of £1.8 million. These are all drawbacks which are not applicable to the other offshore schemes available.

As with all offshore pension schemes, fund-holders must satisfy certain requirements if they are to be considered by HMRC as living abroad. A financial advisory service on offshore pensions should be consulted before making a final decision, as only those schemes recognised by the HMRC can be utilised. Getting the most from a pension fund by avoiding tax liabilities in two different countries is common sense, and it can mean a long and prosperous retirement in the sun.

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