If any QROPS members have been resident in the UK during the last five full complete and consecutive UK tax years, the scheme must then act as though it were a UK scheme. This five year rule does not however relate to the actual time the QROPS was originally transferred out, it relates to non-residency.
The above requirement then falls away after five full complete and consecutive UKtax years although all ‘events’ (taking of benefits) have to be reported by the Trustees to HMRC for a maximum of 10 years from the date of transfer
1.3 SUMMARY OF THE ADVANTAGES
1.Freedom to Control Investments - the possibilities become more or less unlimited and we can utilize investment products from some of the world’s top financial institutions and Discretionary Fund Managers (DFM) to ensure consistent yield, complete flexibility and freedom.
2.Flexibility to access funds – we can access funds at any time between the ages of 50 and 75.
3.Potential for an immediate cash lump sum payment – A Pension Commencement Lump Sum (PCLS) of up to 30% from age 50*.
4.Access to income and capital without deduction of tax* - taxation will only apply in country of residence. Certain jurisdictions have Double Taxation Agreements (DTA) with certain EU countries ensuring you are only liable for Tax within Spain. Your advisor will help decide the best jurisdiction for you.
5.Transfer of the fund to future generations upon death – remaining funds can be held in trust for the purpose of transferring to future beneficiaries.
6. Potentially free from UK Tax – Monies in the pension fund can be paid to the members nominated beneficiaries without any deductions being made at source. In the UK this can be as much as 55%*
7. Tax planning – with the current tax treatment of QROPS in European countries, we have the option to incorporate a ‘temporary annuity’ (capped drawdown) which ensures favorable tax treatment.
8. No limit on fund size – Once the QROPS scheme is live and we have a suitable investment bond in place to achieve growth, we then have the opportunity to contribute further to your overall pension/QROPS scheme either regularly or on an ad-hoc basis. Unlike the UK, whereby you are limited to a Standard Lifetime Allowance no greater than £1.5m, reducing again in Tax Year 2014/15 to £1.25m.
All of the above advantages become possible after your UK pension fund has been transferred to a QROPS and you have been a non-UK tax resident for five full complete and consecutive UK tax years.
1.4 RETURNING TO THE UK
The future can be unpredictable and whilst you have no plans to return to the UK at the moment, situations can quickly change. A common misconception with a QROPS is that should a member who has previously transferred out, return to the UK (either within or after the 5 consecutive tax years) will be penalized and incur additional penalties or higher levels of tax. Neither is true. To the contrary, there are a few small benefits.
Should you return to the UK due to a change in circumstance and become a UK tax resident again, the pension will be subject to UK taxation in line with current/existing levels. The UK transfer is ring-fenced when transferred out and all benefits within QROPS are deemed to originate firstly from the original UK transfer, until exhausted. One actual bonus in this situation is, upon death in the UK only the residual fund from the original UK transfer and not the growth within the QROPS, will be subject to the UK lump sum death charge(55%) In addition, as the QROPS is an overseas scheme, only 90% of the income remitted to the UK is subject to UK tax.
As with most investment choices there are good and bad points to consider. With QROPS the advantages outweigh the dis-advantages considerably, however there are still some key points to contemplate. Contact us now for a free e-guide or to speak with one of our specialist consultants.