Location, Location, Location!

So very often preserving assets boils down to the location.

For British people living abroad a clear advantage in protecting assets is the ability to remove a lifetime’s saving from United Kingdom tax, including inheritance tax, after five full financial years overseas.

This is catered for under the odd acronym QROPS, which stands for Qualifying Recognised Overseas Pensions Scheme - potentially highly beneficial to expatriates and anyone contemplating living or retiring abroad with pension funds located in the UK. 

Only since April 2006 have British expatriates been able to move their pension benefits to a QROPS with the UK tax authority's; approval. This has meant a steady take up as increasing numbers of people realise the hugely significant benefits now available.

Intriguingly, only if you are a US citizen or a US resident, the majority of QROPS and related benefits are likely to be unavailable to you, but citizens of all other nations may apply.  If you are already an expatriate, soon plan to move abroad or plan to retire overseas, QROPS has great benefits.

For British citizens it may be defined as a pension scheme set up outside the UK that’s regulated as a pension scheme in the country in which it is established and which must be recognised for tax purposes in that country.

The most significant benefits come in to play when the account holder has been non-resident in the UK for at least five years and does not intend to return in the foreseeable future. 

When your pension scheme has been transferred into a QROPS and you have been non-resident for at least five years, then your QROPS provider is under no obligation to report any actions, such as withdrawals or payments, to the UK tax authority.

In addition to this, imagine if your QROPS provider is in a country where payments from such schemes are paid tax free - then pension related income could be enjoyed without the deduction of tax. 

Other benefits of these QROPS for eligible applicants include the fact that you are under no obligation to buy an annuity by the age of 75 or face a possible 82% tax charge if you do not.

A significant proportion of a traditional British pension has to be taken in the form of an annuity.  This restricts investment freedom and it can limit how you pass your wealth on to your loved ones.  With QROPS, however, you are under no obligation to use your pension to buy an annuity.  So without having to make this purchase, an expatriate can invest the hard-earned pension into potentially better returning assets and gain the very real advantage of passing remaining funds upon death to beneficiaries instead of having the pension fund die with them.

QROPS allow the investor significantly more freedom when it comes to how funds are invested and how income and gains are used.  For example, with QROPS you can invest in onshore or offshore funds and access the highest fixed deposit rates available while achieving total investment.

Depending on where you live, you may be able to enjoy your pension income in a highly tax efficient way.  You can leave unspent monies to your chosen beneficiaries, take your income in the currency of your choice, potentially protect your assets against possible future creditors, and likely achieve greater confidentiality relating to all your investment activity.

After all this, consider this option: if a UK pension fund were transferred to a superannuation scheme that does not have QROPS status, a tax charge of 40-55% would arise.  That’s not location. That’s dislocation.