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 SJB Global, 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.