Transfer QROPS Back to UK

Transfer QROPS Back to UK.

To take advantage of more advantageous death benefits in pensions overseas, many British Expatriates transferred their UK pension scheme to a Qualifying Recognised Overseas Pension Schemes (QROPS). HMRC must approve all QROPS i.e. overseas pension schemes to enable them to accept UK pension transfers to pension schemes in Australia, Malta, the Isle of Man, Jersey, Guernsey, Gibraltar, the United States or wherever.

When you drawdown your income from your QROPS, HMRC rules dictated that for them to retain approval by HMRC, you could only drawdown income on a similar basis to the UK rules in the early years. There are now over 5 million British expatriates living overseas and many have moved their pension to a scheme in an international jurisdiction to take advantage of local pension rules or to avoid being forced to buy an annuity (guaranteed income for life) when annuity rates are so low or to avoid the 55% tax charge on your pension fund on premature death if in a UK drawdown scheme at the time of death and your surviving loved ones wished to withdraw the whole pension fund.

New Death Rules and Flexibility in UK Pensions

To complicate matters, flexible pension drawdown rules and enhanced benefits on death for all were introduced in the UK in April 2015. At the start of these new flexible rules, QROPS overseas were not granted the same flexible, unlimited drawdown rights as UK based schemes and so many people were left with capped drawdown restrictions in their overseas pension. In addition, the 100% tax free payment of the whole (untouched) pension fund plus new options for payment of a drawdown pension fund (where lump sums or income have started) to be paid tax free in the event of premature death before age 75 has firmly put UK pensions back on the savings agenda.

Returning to UK

You may have become disillusioned with living overseas of fed up with the red-tape of living in certain countries or indeed many British Expats return home because they miss their family or their grandchildren and I am sorry to say in certain circumstances people return home because their health fails and they need that security of family being close or perhaps the protection of NHS treatment.

But, you have a QROPS, an international pension scheme and you are now UK resident. What do we do now?

Option 1: Leave QROPS Overseas

You do not have to do anything you could leave your QROPS, your international pension scheme, in place wherever it is. The issue is that new pension flexibility roles that apply to UK based pension schemes do not apply to QROPS. HMRC confirmed in ‘Statutory Instrument 2015’ by HMRC that they have temporarily postponed owned pension flexibility for QROPS schemes. Quite simply, you don't have full access to your QROPS scheme when you return to the UK. You remain in capped drawdown (i.e. there is a cap on how much income you can withdraw each year) rather than full access flexible drawdown.

The potential of a 55% tax charge on premature death still applies.

Option 2: Transfer QROPS back to a UK Pension

You should consider transferring your QROPS scheme back to a UK approved self-invested personal pension (SIPP) or a normal personal pension plan to take advantage of full access income flexibility and to take advantage of to the improved benefits on death in the UK.

Option 3: I have a QNUPS not a QROPS

QNUPS is a Qualifying Non-UK Pension Scheme. QNUPS were introduced in 2010 to make overseas pension planning simpler and to improve death taxes on overseas pensions to make them exempt from UK inheritance tax for UK domiciles even if living overseas. QNUPS can be a pension scheme in any country, there is no need to register with HMRC (unlike QROPS) and there is also no need for the host country to have a tax treaty with UK (unlike QROPS). In addition, QNUPS do not need to report to HMRC confirming all UK rules benefits are complied with. In many cases, QNUPS are either built up by regular savings by people who live outside the UK or some high earner UK residents who have used up all their allowances in UK pension schemes, but still wish to build up more offshore but without any tax relief on contributions.

If you are UK resident now and you have a QNUPS, there may be a slight tax advantage there where some of your pension income from your QNUPS scheme would be tax-free if you leave it in place, which would be lost if you transfer your QNUPS to a UK pension scheme. The whole area of QNUPS is more complex depending upon how and why these ‘pension’ funds were built up and in which country they are regulated. We can give no definitive answer here and we suggest you contact us if you are UK resident now and looking at drawing QNUPS pension benefits.