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Q. How do I release a substantial capital sum from my UK private pension fund regardless of age?
A. You need to have lived outside of the UK for five complete tax years. Then you can transfer your UK pension fund in to a suitable QROPS within a country that allows the fund to be released on this basis. Subject to where you reside it could be tax free. If you reside in Spain there is no tax to be paid on a capital payment from a pension fund.
If you are currently claiming a private UK pension and do not require a lump sum, scroll down to *Already claiming your pension, for the tax saving advantages of a QROPS.
If you require a capital sum from your private pension fund read on.....
Frequently asked questions in this regard
What is a QROPS?
A QROPS (Qualifying Recognised Overseas Pension Scheme) is a HMRC (Her Majesty's Revenue & Customs) recognised and approved "overseas pension container" that satisfies criteria set out by HMRC, to which you can transfer the fund value of your UK private pension to be reinvested. Before transfer of the fund the investment model you have had historically can be studied in more detail. Then, either recommendations can be made to try to improve upon it or it can simply be replicated upon transfer. As with all private pension schemes, the available investment funds are many and various all managed by experienced fund managers that endeavour to maximise returns. However all investments will remain subject to market fluctuations and currency conversion rates no less than they do now. The way in which the fund is invested and managed is therefore paramount."
There is a list of QROPS to be found: here. Any QROPS can accept transfers from a UK registered pension scheme.
Which type of pension can be transferred to a QROPS
Most types of personal pensions including SIPPs and Stakeholder Pensions. Most types of occupational pensions including those containing 'protected rights' and GMPs (Guaranteed Minimum Pension). This includes civil service, teachers and armed forces pensions. You cannot transfer the UK state pension to a QROPS.
Is there a minimum transfer value to a QROPS?
There is no minimum level. However, it may not be cost effective to transfer a pension fund smaller than around GBP 25,000 into a QROPS.
What are protected rights?
In the past you may have been contracted out of the second tier of the UK state pension. This is sometimes known as Serps. If you were contracted out then that part of your national insurance contributions will have been invested in a private pension fund, and this is called the "protected rights" fund. The word "protected" is something of a misnomer because there is no form of protection associated with this fund, merely some restrictions.
Am I able to transfer protected rights into a QROPS?
Yes – so long as the receiving QROPS is willing to accept it. When the transfer takes place, form CA 1881 should be completed which enables HMRC to keep track of where the protected rights are. In transferring protected rights it is necessary to state that you understand all protection associated with UK pensions legislation is being given up. On transfer to a QROPS the protected rights fund loses its separate identity and is treated in exactly the same way as the remaining part of the fund.
Once my fund is in a QROPS, What tax charges are there for a substantial capital sum to be released from it?
If you have lived outside the UK for five full tax years and have your fund in a QROPS that we have recommended for this "purpose", then there would be no tax to pay in the jurisdiction associated with the QROPS. You simply transfer your private UK pension fund into a suitable QROPS within a country that allows a capital sum to be paid irrespective of age.
You will of course be subject to tax that may arise in your country of residence at the time. If you reside in Spain a capital payment from a pension fund is free from tax.
How long does the process of transferring to a QROPS take?
Generally speaking you should think in terms of the process taking a couple of months or more. However where the transfer is from an occupational pension scheme the process may take rather longer. The process is initiated by asking you to complete a letter of authority. This enables us to obtain the information from your UK pension scheme about your benefits and the transfer value. During this process we also obtain the correct discharge forms should you decide to accept any recommendation that we might make to transfer your UK pension rights to a QROPS.
*Already claiming your pension and paying high taxes?
Q. How do I reduce the tax payable on my pension?
A. If you are currently residing outside of the UK you can transfer your UK private pension fund into a Guernsey QROPS and receive your pension without deduction of tax at source.
Depending on where you live, this being particularly true in Spain & Portugal, the pension income you receive from your Guernsey QROPS will be subject to the tax regulations within your country of residence. Residents of Spain or Portugal can enjoy a tax rate of 2.5% or less!!
Frequently asked questions in this regard
Are there any circumstances in which I shouldn’t transfer to a QROPS?
In most situations that we have come across so far associated with non-UK residents, the arguments are overwhelmingly in favour of transferring UK pension rights to a QROPS. However, some clients may have older pension plans with benefits such as guaranteed annuity rates set when interest rates were much higher than today. In these circumstances it may be better to stay put, but this is not always the case and you should seek our advice.
What happens if I transfer to an international pension that isn’t a QROPS?
There are serious tax implications if the scheme turns out not to be a QROPS. It is essential that you transfer in to a scheme that has been registered with HMRC as a QROPS.
What are the tax implications for a QROPS in Guernsey?
Guernsey does not withhold taxes on investment growth or benefits paid from pensions where the member is not a resident of Guernsey and has not received tax relief on contributions made whilst resident of Guernsey.
Other jurisdictions (such as the Isle of Man) may impose tax on income, death benefits or investment growth. These taxes may not be recoverable and you may not be able to offset them against tax charges made in your own country of residence.
So, unless you once again become a UK resident you become subject to the taxation regime associated with the QROPS you have transferred to. This means for example that if you take benefit from a Guernsey based QROPS there will be no tax deducted at source from payments made from the scheme. You will of course be subject to any taxation on such payments that are due in your country of residence at the time. If you reside in Spain those taxes are extremely low, much lower than the taxation due on a normal UK private pension!
Once I have transferred UK pension rights to a QROPS from which I'm receiving benefit can I access part of my fund as a lump sum?
The answer is “maybe”.
Once you are a QROPS member and you have transferred your UK pension rights into it, you will not remain subject to UK pensions rules providing you have been non-UK resident for five complete UK tax years. After the five year rule all of the UK restrictions fall away unless you become UK resident once again.
Subject to that proviso, access to some part of the fund may be available so long as the legislation of the jurisdiction associated with the QROPS permits it. However access to at least 25% of the fund in lump sum form will always be allowed providing you have not previously taken a lump sum from your UK pension fund before transferring it to a QROPS. Access to a higher proportion of the fund may be possible in some circumstances and in some jurisdictions. This will depend on your age and the size of the fund. Please contact us for more information if required. There may be taxation consequences in respect of this course of action depending on your country of residence at the time.
What happens if I return to the UK?
If you return to the UK then for taxation purposes your QROPS will behave exactly as if it were a UK registered pension scheme. So if you have a QROPS and you are planning to return to the UK it is important to seek advice from us as there are a number of ways to "escape" which may include the provision of a capital sum, or a transfer back into a UK registered pension scheme so as to reduce costs you would otherwise incur.
What are protected rights?
In the past you may have been contracted out of the second tier of the UK state pension. This is sometimes known as Serps. If you were contracted out then that part of your national insurance contributions will have been invested in a private pension fund, and this is called the "protected rights" fund. The word "protected" is something of a misnomer because there is no form of protection associated with this fund, merely some restrictions.
Am I able to transfer protected rights benefits to a QROPS?
Yes – so long as the receiving QROPS is willing to accept it. When the transfer takes place, form CA 1881 should be completed which enables HMRC to keep track of where the protected rights are. In transferring protected rights it is necessary to state that you understand all protection associated with UK pensions legislation is being given up. On transfer to a QROPS the protected rights fund loses its separate identity and is treated in exactly the same way as the remaining part of the fund.
Can I transfer commercial property held by a UK pension fund into a QROPS?
A UK registered pension scheme can make an "in specie" transfer of commercial property to a QROPS. We have been advised that no stamp duty is payable on the transaction unless the property is mortgaged and in which case stamp duty may be payable on the value of the debt.
This is a highly specialist area and if you are in this position you should ask us for specific advice.
What level of income can be paid from a QROPS?
If the member has been UK resident in any of the previous 5 years then the income would be subject to the same restrictions as in the UK, i.e. income restricted by the Government actuary's department (G.A.D) rate based calculations or scheme pension rules.
If the member was not UK tax resident in any of the previous 5 years then the income would be in line with Guernsey rules. Guernsey rules allow for the actuarial calculation of income thus members in poor health, who are older and/ or have greater risk tolerance, may be able to take a relatively high level of income. In general we can arrange for a higher level of income than is possible under UK rules.
