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Using QROPS/foreign pensions to avoid the LTA

Including Financial Independence and Retiring Early (FIRE)
dingdong
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Using QROPS/foreign pensions to avoid the LTA

#474784

Postby dingdong » January 20th, 2022, 3:48 pm

Hi...

I'm currently 47 with about 900k in my SIPP and employer DC pensions. As such I'm expecting to be well over the LTA by the time I reach 55.

What do people think of transferring a limited amount under QROPS to an overseas pension? By my reading it is still possible to transfer to a pension scheme in Malta without any overseas transfer charge as the EU rules haven't changed post Brexit. I'm assuming you could just move a proportion on your pot (200k say), and that 200k would then be excluded from the LTA allowance going forward.

There doesn't seem to be much discussion on here around that option. I can see that ensuring you pick a good manager, avoiding scams, and watching for high charges would be an issue - but compared to a 55% tax charge the fees wouldn't be significant.

Are there any other downsides here or extra charges when you take any income? The only one I can see is you can't move outside the EU for 5 years without incurring the overseas transfer tax.... but I'm struggling to see any further restrictions for people who remain UK resident.


Thanks
Ian

genou
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Re: Using QROPS/foreign pensions to avoid the LTA

#474789

Postby genou » January 20th, 2022, 4:08 pm

dingdong wrote:
What do people think of transferring a limited amount under QROPS to an overseas pension? By my reading it is still possible to transfer to a pension scheme in Malta without any overseas transfer charge as the EU rules haven't changed post Brexit. I'm assuming you could just move a proportion on your pot (200k say), and that 200k would then be excluded from the LTA allowance going forward.

There doesn't seem to be much discussion on here around that option. I can see that ensuring you pick a good manager, avoiding scams, and watching for high charges would be an issue - but compared to a 55% tax charge the fees wouldn't be significant.


It should work for any growth on that 200k. You may know, but don't mention, that the actual transfer will be a BCE8, so you will use ~20% of your LTA getting the money into Malta. The rub is finding a pension manager that you are completely confident in.

vand
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Re: Using QROPS/foreign pensions to avoid the LTA

#474801

Postby vand » January 20th, 2022, 4:49 pm

First I've ever heard of it, but a quick read on the gov site reveals:

"If you’re under 75, your UK pension scheme administrator will work out what percentage of your lifetime allowance is used by the transfer."

https://www.gov.uk/transferring-your-pe ... ion-scheme

hiriskpaul
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Re: Using QROPS/foreign pensions to avoid the LTA

#474816

Postby hiriskpaul » January 20th, 2022, 5:49 pm

As has been mentioned, you get caught by BCE 8. There will also be a 25% tax charge (unless you are resident in Malta).

The charge does not have to be 55% by the way - that is a headline amount applicable if you take the excess as a lump sum. You have the option of paying 25% on the excess and leaving it in the pension. If you, or a beneficiary after you die, then draw it at 20% basic rate the total charge and tax works out at only 40%. That means you (or your beneficiaries) are still going to be ahead if you got more than 40% tax relief on the way in and/or your estate is subject to inheritance tax.

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Re: Using QROPS/foreign pensions to avoid the LTA

#475065

Postby dingdong » January 21st, 2022, 1:54 pm

Are you sure a 25% overseas tax charge would apply though if you remain in the UK and the QROPS pension is within the EEA (e.g. Malta or Gibraltar). I realise we are no longer in the EEA, but AJ Bell's website says this....

"There have been a few questions around what happens in a post-Brexit world, as the legislation currently states there’s no OTC if both the member and the pension are in an EEA country. The UK is still treated as being in the EEA until 31 December 2020. But what happens on 1 January 2021?

Fortunately, this is one tiny area of Brexit that does seem to have been sorted – regulations have been put in place that will amend legislation from 1 January 2021 so that when the member is resident in the UK or in a country within the EEA and the QROPS is established in a country within the EEA, then the charge will not apply"


Obviously if there is no 25% charge then the idea becomes a lot more attractive :) At least from the point of view of allowing those transferred funds to grow further without incurring the LTA charge on the growth. You'd still pay tax at normal rates when receiving any income.

hiriskpaul
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Re: Using QROPS/foreign pensions to avoid the LTA

#475136

Postby hiriskpaul » January 21st, 2022, 4:40 pm

dingdong wrote:Are you sure a 25% overseas tax charge would apply though if you remain in the UK and the QROPS pension is within the EEA (e.g. Malta or Gibraltar). I realise we are no longer in the EEA, but AJ Bell's website says this....

"There have been a few questions around what happens in a post-Brexit world, as the legislation currently states there’s no OTC if both the member and the pension are in an EEA country. The UK is still treated as being in the EEA until 31 December 2020. But what happens on 1 January 2021?

Fortunately, this is one tiny area of Brexit that does seem to have been sorted – regulations have been put in place that will amend legislation from 1 January 2021 so that when the member is resident in the UK or in a country within the EEA and the QROPS is established in a country within the EEA, then the charge will not apply"


Obviously if there is no 25% charge then the idea becomes a lot more attractive :) At least from the point of view of allowing those transferred funds to grow further without incurring the LTA charge on the growth. You'd still pay tax at normal rates when receiving any income.

Offshore taxation is complicated, so no I am not absolutely sure, but as far as I can remember, the whole point of the 2017 legislation was to block this loophole. Here are the HMRC pages on the transfer charge https://www.gov.uk/government/publicati ... -transfers

My reading is that you would be subject to the 25% charge, in which case you might as well not bother and pay the 25% LTA charge.

hiriskpaul
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Re: Using QROPS/foreign pensions to avoid the LTA

#475146

Postby hiriskpaul » January 21st, 2022, 5:09 pm

On the other hand, you might be right as it looks as though a post Brexit amendment still allows QROPS transfers even though the UK is no longer in the EEA (which I think is what you already said!):

https://bdhsterling.com/qrops-overseas- ... e-changes/


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