UK Pension Transfers – Update for Expats

By Chris Burke
This article is published on: 24th December 2014

The rapidly changing landscape of pension schemes in the UK has led to a great deal of confusion, and it’s not just UK pensioners who are affected: the rule changes also impact expats living outside the UK, especially those considering the benefits of a Qualifying Recognised Overseas Pension Scheme.

As an expat, it’s hard to know which route to take. Should you transfer to a QROPS or leave your pension in the UK? What are the benefits and drawbacks? What impact have recent changes had on your options?

Let’s look at the facts…

Reasons to transfer

● Pension Commencement Lump Sum of 30% of the fund. This is tax-free if UK resident but could be taxable if resident outside of the UK.

● No pension death tax, regardless of age, in Gibraltar and Malta

● Greater investment freedom, including a choice of currencies

● Retirement from age 50 (Malta), and 55 in Gibraltar and Isle of Man

● Income paid gross from Malta (with an effective DTT), and only 2.5% withholding tax in Gibraltar

● Removal of assets from the UK may help in establishing a Domicile outside of the UK (influences UK inheritance tax liability)

What will happen if you leave your personal pension in the UK

● On death over the age of 75, a tax of 45% on a lump sum pay-out.

● Income tax to be paid when receiving the pension, with up to 45% tax due, likely deducted at source,

● Registration with HMRC and the assignment of a tax code.

● Proposed removal of personal income pension allowance for non-residents. Although this is still on the agenda, it has been confirmed that there will be no change to non-residents’ entitlement to personal allowance until at least April 2017.

● Any amounts withdrawn will be moved into the client’s estate for IHT purposes, if this is retained and not spent.

● As the client will be able to have access to the funds as a lump sum, these could potentially be included as an asset for care home fees/bankruptcy etc.

● No opportunity to transfer from many Civil Service pension schemes from April 2015 (Only five months remain for public sector workers to review their pension and then make their own informed decision)

What Does All This Mean?

Regardless of the proposed legislation amendments, transferring to a QROPS still provides certain benefits that the UK equivalent would not be able to offer, although it’s fair to say that both still hold a valid place in expatriate financial planning. The answer to which pension is more suitable for you will ultimately depend on your individual circumstances and long term intentions.