Malta has a long history with the UK, paticularly on a military front. The first Malta QROPs where introduced in 2009, and with the new restrictions on Guernsey QROPS, it is likely that Malta will become one of the most popular jurisdictions for European residents.The offshore financial centre has a reputation for providing a competitive tax regime, a stable economy and strong financial regulation. Malta is a full member of the European Union, and part of the Eurozone. The actual Terms and Conditions of each Malta scheme will vary from Trustee to Trustee, so it is important that the most appropiate product is selected.Tax rules for non-residents :
- No income tax on pension income (benefits paid gross)
- No income tax on pension cash lump sums
- No capital gains tax on pension fund gains
- No inheritance tax
Final taxation will depend on the QROPS holders country of residence. Malta has a number of double taxation treaties, and tax implications are another key factor when determining QROPS jurisdiction.
Isle of Man
Similar to Guernsey, the Isle of Man has also been affected by new HMRS legislation. Their 50c pension scheme, which sought to provide exceptional taxation benefits for non-resident holders, can no longer go in to effect as a QROPS.
If you plan to live in the Isle of Man, then there can be significant advantages to holding a QROPS scheme, which are best discussed with a qualified advisor. Clients do not have to pay UK tax on the pension fund, instead a local tax rate of between 10% to 20% can apply, above and beyond the income tax free allowance.
JerseyThere are many other approved jurisdictions listed on the HMRC website. To find the most appropiate jurisdiction for your needs, request a pension transfer analysis from an experienced advisor
Jersey are relative newcomers to the QROPS market. Jersey has around 138 QROPS schemes registered, but local laws only allow them to act for residents. In April 2012, following new HMRC annoucements, Jersey have started to pave the way for non-resident QROPS schemes. Under the new, so-called Recognised Pension Scheme (RPS), benefits would not be paid out before the scheme member reached the age of 55. At least 70% of the funds in the scheme must be designated to provide the member with an income, and the benefits could only be paid out to what the new legislation called "a limited category of other people" on passing.
The largest market for QROPS is for pensions based in offshore financial centres that are English-speaking and with a long-term reputation for political and economic stability and regulation. The Jersey scheme is similar to that recently passed in nearby Guernsey, which is open to residents and non-residents but offers no tax relief on contributions. Alternative local schemes will offer pension contribution relief.
The architecture of a QROPS is similar to a SIPP, so in this respect there are a wide range of investment choices for a QROPS holder. However, it is ultimately the QROPS trustees who have to approve what investments can be made (the same as a SIPP in the UK). The pension funds can be self-managed by the QROPS holder, or a specialist investment manager can be appointed. Many QROPS can be managed online, and some QROPS can be held on investment platforms, so fund purchases can be made instantly online. Example assets include :
- Cash accounts, with institutional savings rates
- Gilts and bonds
- Shares (equities)
- Unit trusts, Investment trusts, OEICs, Exchange traded funds
- Life Company Offshore Bonds
- Structured Notes
- Investment Property (via an offshore company)
The taxation rules surrounding QROPS are continually changing, and are specific to each scheme and trustee. The new QROPS legislation has effectively abolished 100% cash release. The key benefits which can still be found in a QROPS pension are :
- No capital gains or income tax within the QROPS wrapper
- Witholding tax will vary on scheme and holder
- Income paid gross
- Up to 30% tax free lump sum
- No requirements for annuity purchase
- Potential inheritance tax benefits
This is possibly the most complex, and most important to a QROPS holder, and it is why a full transfer analysis is required which will take into account the clients objectives, and the schemes available in the market.
QROPS are not the only pension scheme available to expatriates. Two other solutions for individuals and corporations can be a good alternative, dependent on circumstances
Qualifying Non-UK Pension Scheme (QNUP)In addition to having the beneifts of a QROPS, a QNUP is also expempt to UK inheritance tax. Inheritance tax is applicable to anyone domiciled in the UK, whether they are resident there or not, so immunity from this taxation can be a significant benefit. A UK resident can also contribute to this scheme, however there is no tax relief, so it maybe appropiate for those that have reached their annual or lifetime allowance.
Employer Financed Retirement Benefit Schemes (EFRBS)
A different pension structure more tailored to high earning UK fiscal residents (who may work overseas, or plan to retire overseas). EFRBS allow a corporate to make a contribution from untaxed income to provide pension benefits to members at a later date. The employer makes the contribution gross of National Insurance (although it is recommended not gross of corporation tax). There is no income tax liability as only the employer makes a contribution. The benefit is that the money is in a pension scheme for the member with gross roll up until retirement, greater flexibility, no capital gains or inheritance tax and you can retire from the age of 55. At retirement, depending on your country of residency, you will pay income tax as usual at your personal rate.
European legislation in 2006 governing the freedom of capital movement, combined with the UK's pension simplication rules, resulted in the birth of the Qualifying Recognised Overseas Pension Scheme, or QROPS.
This effectively means that a UK passport holder who moves overseas, can move their pension out of the UK and benefit from taxation and flexibility features. Also non-UK passport holders who build a pension in the UK, and return home, can take their pension fund with them.
A QROPS is an overseas pension scheme that meets certain requirements in order for it to be recognised by the UK HMRC. It can receive the transfer of UK pension benefits without receiving an unauthorised payment charge, as long as conditions are met. The QROPS does not have to be established in the 'new' country of residence, hence providing greater flexibility and choice.
Some of the qualifications of a QROPS include :
- Must be established in a member state of the EU, or
- A country that has a double taxation agreement, and freedom of information, with the UK
- The rules of the scheme state at least 70% of the fund will be designated for income
- Benefits are available only at standard retirement age.
In April 2012, the HMRC introduced new revised rules on QROPS. The main reason for this new legislation was thought to be the reduction of tax avoidance. The new rules have effectively brought the '100% cash release' QROPS to an end. The reporting status to the HMRC has also increased from 5 years to 10 years. So if a payment is made to a client by the pension scheme manager within 10 years of transfer, this must be reported to the HMRC. One of the suprises of the new legislation, is that some jurisdictions such as Guernsey, can no long provide QROPS to non-residents.
If you are interested in transferring your UK pension overseas, we have teamed up with a leading FSA regulated firm, who can provide a free Transfer Benefit Analysis of moving your pension fund out of the UK. The report inculdes :
- Costs vs Benefit of moving the pension fund
- Most appropiate jurisdiction
- Taxation benefits
- Investment options and benefits
The report carries no obligations, and allows the client to make an informed decision if a QROPS pension is right for them. All relevant paperwork, administration, and ongoing support can be provided by the pension specialist, if required