When we move to a new country, there is inevitably a long list of things to sort out, from schools for the children to exporting the car, getting new bank accounts to arranging furniture removals.
However, not everyone thinks about moving their pension.
With pensions consisting of benefits, or capital, accumulated over the course of your working life, you obviously want to consider your options extremely carefully before doing anything.
When it comes to moving them, be warned that there are scams everywhere.
It is also vital that any new arrangements are compliant with the law in France, but also accessible, flexible and free of any severe tax consequences.
Many UK nationals looking to move to France ask us about transferring their pension to a Qualifying Recognised Overseas Pension Scheme, or QROPS, mostly because they are widely advertised in the UK press and financial advice firms.
What is a QROPS?
As the name implies, a QROPS is designed for non-UK residents looking to move their UK pension out of the UK.
What makes a QROPS attractive is that it complies with certain HMRC criteria, and so offers a tax-free way to transfer a pension without having to pay transfer fees.
It is possible for any qualifying pension scheme to apply to be a QROPS but you will need to agree to a 10-year reporting requirement.
Why is France not on the QROPS list?
HMRC maintains a list of QROPS, which can be found on the gov.uk website.
At the time of writing, there were no registered QROPS in France on this list, although other countries in Europe, such as Germany, seem to have several options.
Initially, you could get a French-based QROPS, but this did not last long.
When speaking to SIPNR, the department of the tax office here dealing with assets for French non-residents of France, the conversation got interesting.
“We do not deem a QROPS to be qualifying and so do not recognise it as a pension,” they said.
I replied that the clue is in the name, ie. it starts with the word ‘qualifying’!
The impression I got was that the UK government should not be allowed to decide what the French government should view as ‘qualifying’.
They felt they had a right to disagree, which is not unreasonable.
The problem, they explained, is that a QROPS breaks all the rules of the equivalent in France – that being a PER (Plan d’Epargne Retraite).
SIPNR was willing to review different QROPS contracts to see if any might work, but ultimately everything was refused and it felt QROPS were simply too problematic for French residents.
French nationals returning to France with a QROPS are “strongly encouraged” to transfer it into a PER to avoid any issues.
QROPS treated as a trust not a pension
In essence, the French view a QROPS as a pot of money in a trust. This is not a good thing for a French resident and has caused problems.
To demonstrate how much the French tax office dislikes trusts, understand that a French resident creating one is potentially subject to a special tax levy of 60% of the trust value... ouch!
Ask yourself this: are you prepared to take the risk, no matter how minimal, that the French tax office takes more than half of your pension?
It is no surprise, then, that you cannot get a QROPS in France. You will hear over and over that “as long as it is in the EU, it is fine”. This is simply not how the French tax office sees it.
What if I already have a QROPS?
If you have a QROPS and have never had any issues with the French tax office, you are probably wondering why.
It is most likely that you simply declared the QROPS withdrawals as income from a pension and your local tax office has no idea it is a QROPS, or has not caught up with what it is or what the central tax office thinks of them.
It could, potentially, go unnoticed indefinitely.
There are other issues, such as the fact that they are subject to the 25% Overseas Transfer Charge if they are outside of the EU.
It is not clear if this will eventually be extended to the EU, given Brexit.
In summary, the tax treatment is not black and white because there is no specific law blocking the use of QROPS in France.
However, as you can see, there are considerable risks involved. It is important that you understand what they are before taking them.
Given the potential issues with QROPS, I never recommend them.
There are other solutions, such as an international SIPP. However, even an international SIPP falls under some UK rules.
The positive side is that the French tax office views them as pensions, avoiding any ‘it is simply a pot of money in a trust’ issues.
The other option is to cash in a pension as an Uncrystallised Funds Pension Lump Sum (UFPLS).
Providing they comply with certain key criteria, lump sums can be taxed at a fixed rate of 7.5% after a 10% deduction (CGI 163 bis II), so in effect the tax is 6.75%. This is great news for those who would pay tax at 40% or more.
However, it requires caution, careful planning and timing.
Moreover, we would never recommend this as an option for final salary pensions.
Some people have been advised to transfer their pensions into a QROPS first and then surrender it to avoid the initial UK tax taken at source.
This, however, is an unnecessary expense, considering that for non-UK residents/taxpayers, the UK tax will be quickly repaid in full.
Temporary use of a QROPS is simply more money for the adviser and a greater cost for you.
There is, unfortunately, no straightforward answer to the question of which pension solution would be right for you.
So much depends on the particulars of your situation, so it is vital to take professional advice from a French financial professional who also understands UK pensions and tax laws before taking any action.