Changes to UK pensions could cost British expats
PUBLISHED: 16:59 24 April 2017 | UPDATED: 10:37 16 May 2017
A new law means that those transferring a UK pension abroad could now face a 25% tax, so what options are there for those looking to take their UK pension abroad?
What has changed?
In 2006 UK pension holders earned the right to take their pensions with them abroad without penalty in a QROPS which was driven by Europe and the Freedom of Movement of Capital, People and Pensions. Since then there have been billions of pounds of UK pensions moved abroad as British expats, concerned with currency risks, high pension tax, passing benefits to their family and UK pension deficits among other worries, decided to take their pension with them to more pension-friendly destinations.
Since then the UK government have been trying to stem the flow of pensions out of the UK with a number of measures. The latest of these is the new 25% pension tax announced in the Budget in March 2017, a measure designed to make people leave their pension in the UK.
If you arranged a pension transfer BEFORE 9 March 2017 then this tax does NOT affect you. However, those transferring a UK pension abroad into a QROPS after this date will face a 25% tax, unless certain conditions are met. These conditions are:
• Both the member and the QROPS are in the same country after the transfer
• The QROPS is based in the EEA and the member is resident in another EEA country after the transfer (the EEA consists of all EU countries as well as Iceland, Liechtenstein and Norway – Gibraltar is included as part of the UK)
What affect could Brexit have on UK pensions?
QROPS remains an option for EEA residents but we expect that once the UK has left the EU then this option will no longer be available. We assume that after the UK has untangled itself from Europe in April 2019 then HMRC will apply the same rules to the EEA as it does to the rest of the world.
The UK government has been very clear – it will continue its effort to increase levels of revenue through further pension taxation.
What are my options for moving my pension abroad?
QROPS may still be appropriate for those that live in certain locations where a local QROPS scheme is available, for instance Hong Kong or the EEA.
Another option is an International SIPP. The benefits of a SIPP are:
• You take control of your pensions
• You get full access to your pensions from the age of 55
• You are not subject to the UK pension transfer charge
• You have an international platform so you can manage your currency risks and investments
• You protect yourself from the pension deficits of a Final Salary Scheme
• You can crystallise your pension at the age of 55 to help minimise any Lifetime Allowance Charge implications
• You can pass on your full Final Salary Pension to your beneficiaries
• You can transfer to a QROPS if you move to an appropriate jurisdiction
Under a SIPP your pension will still be under the UK’s jurisdiction but you will have control and from age 55 when freedoms apply we can help you take it abroad then.
Given the myriad of options if you are an expat and own UK pensions, please contact Forth Capital to set up a review with one of our Pension Specialists.