You
may or may not have heard of a QROPS but if you have a UK personal
pension, as many ex-pat Brits do, this article may be of some interest
to you.
There is much uncertainty surrounding this subject for individuals
that are now considered as US tax resident/citizens. Although this short
article is by no means comprehensive, it will aim to make clear some of
the main points on the subject.
QROPS Basics
The term QROPS is an acronym for ‘Qualifying Recognised Overseas
Pension Scheme’, a title that the HMRC bestowed upon certain overseas
pension schemes that meet specific requirements (Although, HMRC have now
changed the term to ROPS). These schemes must conform to being as
closely aligned to how UK pensions are organised and operated in order
to maintain this status.
If any overseas pension providers do not keep their plans aligned to
the legislation, they risk losing their QROPS status with the HMRC. If
they do lose this status, the overseas pensions will be unable to accept
transfers into them without triggering an unauthorised tax penalty
charge which could be up to 55% on the value of your pension.
Historically, Guernsey used to be the most prominent offshore
jurisdiction that led the market with QROPS pensions until the majority
of them were delisted back in 2012; Malta has now become the main
provider.
QROPS
are basically an overseas personal pension plan that is similar to a UK
personal pension. Meaning, the pension will grow tax deferred until you
begin taking an income which will then be taxed by the IRS.
Another
major QROPS advantage was the ability to leave your remaining pension
pot to your loved ones free from tax whereas the UK used to apply a 55%
death tax. From April 2015 this death tax was abolished by George
Osbourne. Now you can leave a UK pension pot as a lump sum or as an
income completely tax free up to 75. Individuals that die after 75 can
pass the pension on to a beneficiary who can draw an income or a lump
sum (new legislation for 2016-17) at their marginal tax rate. As you can
imagine, this has had a major impact on the previous advantages QROPS
used to enjoy.
Of
course, there are many other, finer details associated with this
complex issue but we are constrained by the limits of the article. This
being said, I hope the article has addressed the key issues and has
provided some insights into any questions posed. These views represent
our interpretation of the rules.
At Alexander Beard, due to such uncertainty, we believe that the
tried and tested route of a UK SIPP is by far the safest option and so
we made a corporate decision that we will we will not expose our
clients’ money to these potential risks.
If you would like to discuss this matter in more detail then please
do get in touch with us. Alexander Beard is an international financial
advisory service who are registered and regulated both in the United
States and the United Kingdom.
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