BRITISH expats with private or work pensions in the UK who have since moved abroad can now benefit from a 'Qrops' - a trust structure which allows you to take the pension out of the UK and outside the scope of restrictive UK pension rules.
This allows you more freedom in terms of what the pension can be invested in, when and how you take it and it may save you tax.
However, only structures approved by the UK government are allowed.
Connexion speaks to Brian Stewart, CEO of Stewart Asset Management Group (Samg), one of the few financial specialists offering the product to British expats in Monaco and France.
Samg offers clients the option of holding their pensions in a Guernsey-based Qrops and helps them choose how to invest the funds held in it. Mr Stewart said that expats in continental Europe have been largely unaware of the benefits of a Qrops - which have been legal since 2006 UK legislation which followed an EU pensions directive.
Even many of the 6,500 British residents in tax-free Monaco have been leaving pensions in the UK - and paying UK tax on money from them - he said. “Statute provisions are made but it takes a while for people to get used to what they mean.
“The benefits are quite obvious but pensions are not widely advertised or spoken about at parties.
“However with some people, such as former directors of Plcs retiring with pension funds worth £10 million or more, I think we will be hearing a lot more about them before long.”
He said some people would have heard about them in connection with a scandal in Singapore where a Qrops had its authorisation to operate removed after it was badly marketed as a tax avoidance scheme.
“It's a serious matter and there are serious penalties if you do things wrongly, but if it is properly marketed and to the right people is very beneficial. There are a lot of misunderstandings and a lack of knowledge,” he said.
He added: “This is a way of getting back the asset you believe is yours and doing what you want with it.”
Qrops stands for Qualifying Registered Overseas Pension Scheme. The one offered by Samg is run by the Guernsey-based trust firm Confiànce.
Each Qrops is a trust structure which has been approved by the government of the country it is based in and then also vetted and approved by the tax authorities in the UK.
“This is not something you have to hide from HMRC,” said Mr Stewart.
UK pension rules apply to the pension for five years following the date when the pension owner moves abroad. If they have already been abroad for five years they cease immediately.
Each Qrops is a multi-member scheme and each member's fund is held in a separate account.
The Confiànce scheme is known in Guernsey as a retirement annuity trust, or “Rat” and is named after an old local word for the island, Sarnia.
According to Mike Brown, a director of Confiànce, there are many benefits of using their version as opposed to one of the others which exist in France or on Guernsey, including the directors’ many years of experience - he started in financial work in 1968 - and the fact the company is owned by the directors with no shareholders to answer to.
He said: “We are trustees and nothing else. I believe some banks are opening themselves up to litigation by being trustees and also managing funds - if they do not do a good job as managers will they sack themselves as they should under the trust rules?”
He added that Guernsey was the ideal place to hold your pension, instead of France. “If you want to avoid the tax and investment restrictions in England, moving it to another country with tax and investment restrictions is pointless.
“Guernsey is tax neutral and investment criteria are very broad.”
Non-Guernsey residents putting pensions in a Guernsey-based Qrops will never be taxed on it by Guernsey, he added.
Confiance’s Qrops also guarantees that anything beneficial about the pension rules of the original country will be maintained.
One of the major benefits of a Qrops is that the UK's “very strict rules” on how pension money is invested no longer apply. Taking the Qrops out of the UK also allows people to minimize the burden of UK specific taxes and also the risk of changes to future government policy on pensions.
Mr Brown said: “UK personal and commercial indebtedness is amongst the highest in Europe. They are storing up horrendous problems for the future and what's happened in the markets recently has exacerbated it.
“People who have retired to the sun are often ex-entrepreneurs or senior executives with substantial pensions left in the clutches of Gordon Brown who is facing a big fiscal deficit. In September, the National Institute of Economic and Social Research reported that a rise in income tax of as much as 5p in the pound will be needed within the next three years as public finances deteriorate. This increases the risk of tax hikes on UK pensions. Having your pension in Guernsey insulates it from political change and from Gordon Brown. He already made one £5 billion raid on pensions and might make another.”
A Qrops also allows you to, potentially, simply take all the money out of your funds after the UK regulations cease to apply. However Mr Brown said he did not recommend this if you do not need to, as money taken out would become taxable in France for French residents.
Mr Brown said a Qrops was not a “panacea” and not suitable for everyone.
“We will do a suitability study for every potential client,” he said.
To find out more call Samg, from France, on 0805 102 560 or, for Monaco residents, call their office in the principality on 00 377 99 99 66 30
Qrops: the key points
IN association with Mike Brown of Confiànce we look at the main issues surrounding a Qrops, with a focus on the situation for an expat Briton living in France.
When do British limitations stop being applicable once I transfer the money to a Qrops?
For the first five years after you cease to be UK-resident UK rules will apply, this relates primarily to how the fund can be invested.
If you have already been non UK resident for five years, UK rules cease to apply immediately the fund is transferred.
Can I transfer my pension even if I have started to take income or capital from it?
You can transfer it after you have put it into draw down (taking capital payments) - though if you have started taking out a certain amount at regular intervals you should continue to do so. If you have bought an annuity or you have started receiving a final salary scheme pension you cannot transfer it.
Can I transfer my state pension?
No. We are talking about transferring a pension fund not a
guaranteed income as in the case of a state pension.
Are there tax implications while the fund is untouched if I leave it in the UK or transfer it?
No, the fund is not taxed in either case while you are not receiving anything from it.
What is the difference in taxation of any pension I start to take from the fund, if it is left in the UK or moved?
If you leave it in the UK, any pension you receive will suffer UK taxation, however, subject to double tax treaties, credit for this UK tax should be allowed against your French tax liability (ie. If the French tax liability assessed on it is less than or the same as that paid to the UK you pay no French tax, but if it is more you pay France the difference).Essentially there is no difference for someone living in France - you pay the full amount to France.
However by moving it to a Qrops you will avoid additional taxes unique to the UK, like the special lump sum death benefits charge.
This is a 35% UK tax which taxes capital sums paid to heirs following the death of the recipient of the pension prior to the age of 75 if he or she has commenced taking a drawdown pension.
If he or she dies after reaching the age of 75 the rate of tax can in certain circumstances reach 82%.
In the UK you are obliged to secure an income at 75. Does this apply to a Qrops?
No, you are never obliged to buy an annuity - an income stream which cannot be passed to heirs - but you do have to start taking a pension from it by that age.
If someone has a pension in the UK can they cash it in tax free?
They can only cash in up to 25% tax-free. With the Qrops you can cash in the Qrops fund tax-free if you want but Confiànce strongly advises against this. It is better to keep the fund intact in a tax neutral environment than to bring into a taxable environment. In France, for example, it could become subject to income tax, capital gains tax and wealth tax, depending on what you do with it and your individual circumstances.
In the Qrops, what could my pension be invested in?
The Guernsey pensions regime is much less restrictive than the UK's where, for example, you cannot invest in residential property even though now, with the UK's property slump, might be a good time to buy. There are practically no restrictions, other than the trustees overriding responsibility to preserve and enhance the value of the fund.
Is there a minimum or maximum size of pension fund?
No, but it is probably not cost effective for a sum less than £250,000. The increased flexibility of investment opportunities - such as investing in residential property - would not be as attractive for the smaller valued fund.
What fees are involved in the transfer?
Typically if you invest in a Qrops though Sam Monaco the fees would be about 3 - 4% of the fund value. Usually the percentage decreases the larger the fund is.
Can I receive money in euros?
You can receive the pension in euros; indeed you could invest the whole sum in euros, thereby avoiding exchange risks.
If you invested in sterling and took a euro pension there would be exchange rate exposure. If you make a loss or make a gain would depend on exchange movements.