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A QROPS is a Qualifying Recognised Overseas Pension Scheme. For an overseas scheme to be deemed as such, it must satisfy criteria stipulated by HMRC.
A QROPS is run by a trustee or trustees in a jurisdiction outside of the UK (regularly Malta, Gibraltar or the Isle of Man owing to the trusted regulatory environments and general stability of these countries). It ‘qualifies’ in that; HMRC agrees that it is similar enough to UK pension schemes that UK pension holders can transfer their pension pot over. This is in order that they can live abroad as an expat without their pension being subject to UK rules.
In some cases, scheme sanctions and unauthorised transfer fees may be charged if the destination pension scheme is not a QROPS.
Benefits of a QROPS
Income from UK pension arrangements is subject to income tax. It is collected as a withholding tax at 20%, and this tax is applied to everyone in receipt of UK pension income whether or not they live in the UK and with no exemption for foreign nationals.
QROPS and other overseas pension schemes allow for the payment of pensions in currencies other than Sterling, providing a valuable safeguard for expats.
Freedom of choice
As an expat you can move your pension funds into a QROPS ‘in specie’, which means you can use the same funds, but under the QROPS umbrella for tax shelter. Alternatively, you could invest in almost whatever mutual funds, shares, ETFs, gold funds, silver funds or bond funds that you choose.
Protect your investments
Depending on the jurisdiction chosen for the Overseas Pension Scheme, there is the potential for greater protection against creditors and other claimants than is typically available.
There are a number of criteria which you must satisfy to be eligible for a QROPS, including:
- You have a UK pensions (excluding state pensions) of any value
- You are planning to, or currently, live overseas
- You are not planning to return to the UK or you will at least be out of the UK for a minimum of 5 years
- You have not already purchased an annuity
- If yours is a final salary scheme, then the scheme should not be already in drawdown
- Investment allocation
UK pension funds often have a bias towards investment in UK assets. QROPS provide the scope for diversifying, as well as the option for more personalised investment management.