While many expats and professionals who have left the UK transfer their pensions to QROPS it is quite common that they will return at some. Nobody can be 100% certain that they will never return to the UK so if you are in this position then be rest assured that you are not alone.
What do I need to know about having a QROPS if I return to the UK before retirement?
If you move back to the UK to work but then move abroad again before accessing your pension then there is nothing to worry about from a tax perspective. Your QROPS will continue to serve you as a pension as the only taxes due come when you draw benefits.
One area that you should pay attention to is concerning the underlying investments. International financial advisors often recommend investments that would not be permitted in the UK (structured notes, for example). This can cause you problems when you seek investment advice. A UK-regulated independent financial advisor may be reluctant to take you on as a client due to regulatory risk. Furthermore, if you sell your structured notes in order to access more suitable investments then it is likely that you will receive a lot less than the original capital invested due to the way secondary values are calculated.
If you are currently working with an international financial advisor then you should consider where and how they are regulated. Financial advisors abroad operate outside of UK regulation and often use quite opaque setups in jurisdictions like Cyprus or Mauritius in order to advise expats. Once you return to the UK, they would not be able to continue to advise you legally.
As a forewarning, if you are living overseas and considering transferring your UK pension to a QROPS that make sure that the investments are in line with UK rules and also that your advisor is able to continue to advise when you are UK resident. Regardless of your future intentions, you should ensure that your advisor is properly regulated. Although certain laws might allow them to ‘passport’ advice to you where you are resident you should understand the permutations if you ever have cause to complain. Find out where and how your advisor is regulated and then ask yourself if you would be confident pursuing a complaint in that country. In essence, would you be more comfortable dealing with the regulator in Mauritius (for example) or the UK (where the Financial Conduct Authority – FCA – is heralded as one of the most robust regulators in the world)?
How does having a QROPS affect my Lifetime Allowance?
If you transferred your pension away from the UK because you were concerned about the Lifetime Allowance (LTA) then you needn’t worry. The LTA is a cap on pension savings – any pensions above £1,030,000 (rising with inflation each year) is subject to a ‘recovery charge’ (tax) on income of 25% (or 55% if taken as a lump sum).
Entering drawdown on a UK pension is deemed to be a Benefit Crystallisation Event (BCE) and the point in time at which your pension is tested against the LTA to determine what tax you should pay.
If you have transferred your pension overseas then this is also a BCE and the point in time at which your pension is tested. If your pension was below the LTA when it was transferred but is now above the LTA since the QROPS’s investments have grown then there is no recovery charge to pay as you have already crystallised the benefits. Likewise, if your UK pension was above the LTA when you transferred then you would have paid the recovery charge on the amount above the LTA at the point of transfer meaning that no further testing against the LTA will be conducted and all future growth is free from the concern of the recovery charge regardless of whether you are a UK resident or not.
What tax will be charged in the UK on my QROPS Income?
This is dependent on the jurisdiction where your pension is held and the nature of their double taxation agreement (DTA) with the UK.
Using Malta as an example – the most popular destination for UK pension transfers – pensions are paid out gross (meaning zero tax at source in Malta). Tax is then due according to your country of residence. If you are resident in the UK you will pay income tax according to your marginal rate in exactly the same way as if you had never transferred it in the first place.
There may be tax implications for someone returning to the UK if pension withdrawals have already been made from a QROPS while they were resident overseas. This generally applies where the UK authorities consider that the period of residence overseas was only temporary – i.e. it did not exceed five complete and consecutive UK tax years. In this instance advice should be sought before deciding to return.
What happens to my QROPS when I die?
Again that depends on where you are resident. If you are resident in the UK then it will be subject to UK rules:
- Prior to your 75th birthday, benefits would normally be free of any UK taxation;
- After your 75th birthday, benefits would be subject to a UK tax charge.
- On death after age 75, if any lump sum was paid to an individual, the rate of tax charged would be the recipient’s marginal rate of UK income tax; otherwise, the rate of tax charged would be 45%.
Can I transfer my QROPS back to the UK?
That’s a very relevant question! As the points above illustrate, there is no advantage to holding a QROPS if you are a UK resident. From a cost point of view, it is certainly cheaper to manage a pension within a Self Invested Personal Pension (SIPP) especially given the nature of some of the structures used in QROPS which pay extortionate commissions that would not be allowed under UK rules. Furthermore, if you intend to carry on working and you want a pension that you can contribute to then you will need an alternative. QROPS cannot receive further tax-relieved contributions so your only option is a SIPP. Rather than have the costs of running two pensions and the headache of running an investment strategy across two pots, it would make sense to have one single structure.
If you’re currently living overseas and thinking of returning to the UK but have concerns about your pensions then please contact us via the form below and we’ll be in touch.
QROPS ADVICE FOR EXPATS
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FREE QROPS CONSULTATION
We’ve helped countless expats and international professionals with their existing QROPS. Through a free consultation we can help you to understand several key matters:
- The existing structure.
- The commissions paid out.
- The charges for the structure.
- The suitability of the underlying investment portfolio.
- The tax implications according to your current and future residence.
- An examination of the transaction history to understand where and why fees have been leaking out.
- Alternatives to reduce your fees and improve management.
- A detailed report and written evaluation of the options available to you.
- Transparent, independent, fee-based, UK-regulated advice.