While the Bill’s proposed changes – which take effect from 6th April 2017 – were largely heralded in the Autumn Statement, it went a long way to aligning overseas pensions such as QROPS (now known as ROPs) more closely with the rules already in place for UK pensions.
We’ve identified six key areas where overseas pensions, and specifically QROPS, will be effected:
The Bill has extended the UK’s taxing rights from 5 to 10 years for UK pension rights transferred to QROPS. Currently you can take a 30% lump sum from a QROPS provided you have been outside of the UK for 5 complete tax years. This lump sum is tax free at source, but may be taxable in your country of residence depending on their rules for receipt of foreign pension lump sums. The good news is this only applies to schemes funded post 6th April 2017, essentially where the transfer is received into the QROPS on or after that date.
The requirement for pension schemes to designate a minimum 70% of funds that have had UK tax relief, which have to be used to provide the member with an income for life, has been dropped. The aim of this is to equalise the position across all tax jurisdictions. As a consequence of this, flexible access will now become available from QROPS in non-EU member states should the relevant local authorities choose to adopt it.
Non-EEA schemes are now required to introduce a requirement that if the pension scheme is not regulated by a body in the country where the scheme is established, the provider of the scheme must be regulated for the purpose of establishing and running the scheme. In addition, the jurisdiction must hold a tax information exchange agreement (TIEA) with the UK.
ROPS / QROPS can now pay benefits earlier than the “pension age test” outlines, which is currently 55 years, but only where such payments are authorised member payments under a registered pension scheme, for example as a result of serious ill health.
The further revision of the ROPS / QROPS conditions means that the list of qualifying jurisdictions may potentially get smaller.
ROPS/QROPS will now get a tax free lump sum of 25% when paid from foreign pension schemes to a UK resident, bringing this in line with tax rules for UK registered pension schemes. HMRC now intends to tax all lump sums received from overseas pensions which exceed the 25% tax-free allowance, and the 10% deduction from UK income tax on foreign pension income will however no longer be effective. Essentially, any amount over a lump sum of 25% paid from a foreign pension scheme to a UK resident will be subject to UK taxation. This would apply to all overseas pension pots going forward regardless of when transfers were made to them.
So, while there were no huge surprises in the 2017 Finance Bill, the changes for pension holders living overseas are significant and shouldn’t be ignored.
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The information in this article aims to provide information. However, this is not intended to form professional advice nor should it be relied upon as such and before taking any particular action, specific and personal advice should be obtained. All levels and basis of, and relief from taxation illustrated here are subject to change. The Fry Group (Singapore) Private Limited. Authorised to act as a financial adviser by the Monetary Authority of Singapore (MAS). License number FA100057-1.