QROPS for European Expats has just gotten even better!

QROPS for European Expats has just gotten even better!

A lot of you may be wondering what the tax advantages are for a QROPS if you live in Europe. The way QROPS for European residents is taxed, has just become a hell of a lot better. As some of you may know, many European countries operate under the civil law framework rather than trust law, like the UK. Under civil law, local tax authorities in countries such as Spain, Portugal, France, Germany, Italy and many more do not recognise trusts including QROPS.

What does this mean for QROPS?

In simple terms this could mean you could pay a lot less tax on income from your pension if you choose the right QROPS. QROPS have always been written under ‘trust law’ rather than ‘contract law’, until today. If written under trust law, the tax authorities in one of these countries will simply look through the hood of the QROPS and tax it as if it was earned income. If written under contract law, the authorities tax it in a whole different way.

How does this new QROPS apply to Spain?

The Spanish system taxes retirement schemes in two separate ways:

  • Plan de Pension – This is the equivalent to a UK Pension – income received is taxed as earned income in Spain – up to 47%.
  • Plan de Jubilacion – QROPS written under contract law – income received is taxed as investment income tax on the profit element only.

Any non-Spanish pension plan such as QROPS that is written under ‘contract law’ is treated as a ‘Plan de Jubilacion’. For this reason, the QROPS is treated as income from capital invested rather than earned income. Furthermore, the taxation is not on the amount received but rather on the profit element received as investment income tax. This could be the difference of paying 47% tax or as little as 3% tax.

This sounds all too confusing to me

You don’t need to be a tax expert to transfer to a QROPS, nor do you need to search the internet for days to find out how to transfer to a QROPS. Here at expat-financialadvice.com, we can recommend you a suitable independent financial adviser to help you with your transfer as well as answer any questions that you have for free. Please request a free call today.

QROPS sales soar as growing concern lingers over policy changes

QROPS sales soar as growing concern lingers over policy changes

QROPS stands for Qualifying Recognised Overseas Pension Schemes which allows Expats living overseas to transfer their UK pensions to a more favourable tax jurisdiction. Since the UK referendum, there has been growing concern that the UK government may reduce the tax advantages available to expats or even remove QROPS all together.

Growing concern by the potential removal of QROPS benefits by QROPS trustees and wealth management firms have caused in influx in QROPS transfers. Current benefits for a QROPS can include the following:

  • Removal of UK taxes.
  • Increased Pension commencement lump sum (previously called tax free lump sum).
  • Choice of currency including GBP, AUD, USD, EUR, NZD and all major currencies.
  • Greater choice of investments.
  • No UK inheritance tax.

What action is being taken?

Due to the rising debt levels in the UK, the government have the ability to reduce the debt levels by either increasing taxes or reducing government spending among other things. Pensions are usually the easiest attacking point which is now under even more scrutiny since the UK have voted to leave Europe. There has been talks of reducing the benefits available to QROPS, such as changes to how they are taxed including the amount of tax free lump sum a member is allowed. QROPS legislation changes have of course been changing every year since they began in 2006. So far, no changes have been made retrospectively.

Many Independent Financial Advisers are being forced to diversify their business away from QROPS in the case that it is removed completely. This concern has also lead to an increase in enquiries for people who want to transfer their pensions overseas. STM Group, one of the big players in QROPS, have reported the largest amount of sales in QROPS over the last 12 months.

What should I do now?

If you are an Expat living overseas and have a UK pension, it could be beneficial for you to look at your options to see if QROPS is right for you before it’s too late. We can recommend you the most suitable independent financial adviser given your request by filling out your details on our contact form.