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QROPS still available in Europe

QROPS still available in Europe

Brexit uncertainty has led many to speculate that QROPS and its associated benefits might be closed, but at present this popular pension scheme is still available in Europe. The UK 2021 Budget did not include any changes to QROPS, so transfers to EU-based QROPS currently remain tax-free for EU residents. However, now the UK has left the EU, the concern is that the 25% tax charge could potentially be extended from non-EU areas to capture future EU transfers.

What is a QROPS?

A QROPS (Qualifying Recognised Overseas Pension Scheme) is an overseas pension scheme that meets the requirements and pension rules set out by HMRC (HM Revenue & Customs) to transfer and consolidate UK-registered pension schemes. Basically, it enables British expatriates to simplify their affairs by taking their built-up pensions with them when they emigrate or retire abroad.

How to qualify

  • You have UK pensions (excluding state pensions) with a total fund value of at least £50k.
  • You currently live or plan to live overseas.
  • You will not be returning to the UK within the next 5–10 years.
  • You haven’t already purchased an annuity.

What are the benefits of a QROPS?

Currently, most expats can transfer to a QROPS completely tax-free. There is no Lifetime Allowance (LTA) Charge unless over the £1,073,100 limit, in which case you would face a 25% tax penalty on anything transferred over that even as a non-UK resident. However, once in a QROPS, funds would never be subject to these charges again.

  • Your pension effectively moves out of UK jurisdiction, laws and tax system.
  • You can choose a flexible investment plan across a wide range of funds depending on your circumstances, objectives, timeline and risk appetite.
  • Overseas pensions will ensure that remaining pension funds are passed to the intended beneficiaries easier and depending on your circumstances assist in reducing applicable inheritance taxes.
  • Income paid out from a QROPS is typically paid out gross, allowing flexibility and tax benefits. QROPS allow you to invest funds and make withdrawals in more than one currency, thus removing dependence on exchange rates.

Potential drawbacks of a QROPS

If you transfer to a QROPS based outside the EU, the UK will apply a 25% Overseas Transfer Charge (OTC) on the whole transferred amount.

They are expensive. Typically, the set up and annual trustee fees are three or four times the cost of a SIPP or International SIPP.

By taking your pension out of UK jurisdiction, you lose all the protection afforded by the FCA, as well as the Financial Services Compensation Scheme (FSCS), which would normally cover any UK pension.

QROPS are often sold by commission-based advisors, who tend to put a commission paying investment bond within the pension structure.

QROPS in France

UK pension and QROPS income is taxable in France at the income tax scale rates.

For 2021, these start at 11% from €10,085, peaking at 45% for income over €158,122. Then a 3% or 4% surcharge applies over €250,000 and €500,000 respectively. However, under certain conditions, it is currently possible to take your pension fund as a lump sum, whereby you just pay 7.5% tax with an uncapped 10% allowance.

In addition, pension income in France attracts 9.1% social charges (7.4% for pension income under €2,000 a month or €3,000 per couple) unless you hold EU Form S1 or are not affiliated to the French healthcare system.

For French residents, reinvesting pension funds into a suitable life assurance, where the underlying investments attract no tax in France, may be more beneficial than a QROPS.

Contact Harrison Brook for QROPS

Overseas pension transfers are complex, and you should explore all the choices available to you in order to find the most suitable pension solution for your particular circumstances. If you are not sure if you are eligible for a QROPS transfer, or confused by the options available, speak to a Harrison Brook financial adviser for a free pension review.

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