Following the UK’s exit from the EU, possible amendments in legislation regarding the freedom of movement of pensions may herald in a period of increased demand for QROPS. The concern being that the UK Exchequer may decide to apply restrictions, or even abolish what was a system effectively foisted on them by the EU. Should that be the case, time may be of the essence because, although HMRC have never applied retrospective action on cases that are already in existence, transfers that are still in process would count as fair game and, as they can take weeks or months to complete, depending on the former pension schemes’ attitude and administration, this could catch a large number of individuals.
The fact is that HMRC have never been keen on the concept of UK pension holders being able to move their pot outside their control, so there has to be a distinct possibility that the current ability to transfer pension benefits away from the UK tax net could well be a target.
If you intend to remain a non-resident of the UK, for tax purposes, then examining the merits, or otherwise, might be better done sooner rather than later. It is, of course, entirely possible that HMRC will leave the situation as it stands. The issue is that, at this stage, nobody knows how they will react.
Pensions in the UK have gone through dramatic changes over recent years and it’s important to look carefully at current schemes to weigh the potential advantages of transferring against any loss of guarantees that exist in some schemes, particularly ‘defined benefits’ arrangements.
If you intend to remain an expatriate then distancing yourself from the UK financially is important from a tax perspective. There are two main categories that apply to non-residents of the UK. The first is ‘non-resident for tax purposes’. This requires certain conditions to be satisfied to ensure you are fiscally removed from the UK, apart from inheritance tax. Any significant attachments there can be construed by HMRC that you intend to return and whilst that may or may not negate your non-resident status, it can certainly affect the second category, ‘non-domicile’.
‘Non- domicile’ is more of a grey area. All UK citizens are deemed as domiciled in the UK, as a default position. Non- domicile, if established, removes you completely from the UK in every financial respect but it is not likely that HMRC will confirm this status in writing, even if it has been achieved. There have been a number of high profile cases won by the UK tax authorities, which subsequently exposed those individuals to inheritance tax assessments. In these cases, again, establishing intention to return to the UK came into play. The more it can be shown that you have reasons to come back, the more likely ‘non-domicile’ status will elude you. Owning property, holding UK bank accounts, children at school there are all notches on the gun that can add up to your being still classified as domiciled in the UK and, in consequence, potentially liable for inheritance tax on your worldwide assets.
One of the advantages of QROPS for non-residents of the UK, irrespective of ‘domicile’, is that it places those pension assets outside of your estate for inheritance tax purposes. Nonetheless, this should not be taken in isolation – a proper assessment of your overall financial situation should be undertaken, in conjunction with any pension arrangements, to ensure the best possible planning for you and your family. There are other factors that can influence your status as far as the UK is concerned so, as is always the case in financial matters, getting the correct, legitimate advice is key to setting up your affairs in the most effective manner.
Important Note – – This article contains general information only and is not intended to be taken as specific financial, investment, or tax advice. A personal analysis should always be obtained.
IFA International does NOT provide discretionary portfolio management, securities advice, forex trading, or local brokerage / insurance products. The services that IFA International Group provides are for international investors and expatriates only and are not applicable to local nationals. This is NOT a solicitation to sell or market securities. Questions to the author can be directed to: [email protected]