Many expats who leave the UK for overseas destinations choose to return in the future, or relocate in the knowledge that their move to warmer climates may be temporary. For those who leave the UK, transferring their pension to a Qualifying Recognised Overseas Pension Scheme (QROPS) is a logical and beneficial step. However, expats who plan to return home need to know whether QROPS can be transferred back, offering them the long-term financial security they crave.
QROPS Pension Transfer: The Tax Implications
Fortunately, it’s straightforward to transfer QROPS back to the UK, but it’s important to understand the tax implications in doing so.
Tax isn’t charged on transfers, but if you start to draw down money from an offshore QROPS, you may be liable to pay tax on:
Regular or one-off income withdrawals
Small lump-sum payments.
Serious-ill health payments (if paid to members aged 75 years or over).
You’ll be liable for taxation if you’re a resident in the UK during the tax year the payments are made or during the previous five tax years. If you have not lived abroad for over five consecutive UK tax years but have made withdrawals overseas, the situation is more complex and you should seek qualified professional advice before returning to the UK.
Lifetime Allowance Considerations
The Lifetime Allowance (LTA) is a cap on pension savings, meaning that any pensions in excess of £1,073,100 is subject to an additional tax charge (25% on income withdrawn and 55% on lump sums).
If your pension was lower than the LTA when you transferred your pension overseas but has since increased above the threshold, the additional charge does not apply.
If the UK pension was above the LTA when you transferred it, you will already have paid the additional charge, so future growth in your fund is free from the tax, irrespective of where you live.
Seeking Professional Financial Advice
You should be aware that many UK financial advisors won’t work with QROPS pensions due to a lack of expertise in the product and complexity.
If you’re planning to return to the UK, you should make sure your chosen adviser is able to advise you both in the UK and on overseas matters. Additionally, the adviser should be FCA-regulated so that you enjoy the protection of the UK’s robust financial and consumer laws.
The Benefits Of Transferring To A Self-Invested Personal Pension (SIPP)
You will enjoy easier access to your money in future.
You won’t need to observe any changes to legislation that affects QROPS in future.
Unlike QROPS, you can make additional tax-relieved contributions to the SIPP.
In many cases, the annual costs associated with SIPPs are lower than QROPS (although this depends on the size of the fund).
A single SIPP is easier to manage compared to two separate investments.
The UK market is generally more mature, giving increased confidence when investing your pension.
Contact Arlo Group
At Arlo Group, we have an unrivalled reputation for expert advice, so if you plan to return to the UK with a QROPS or other overseas investments and pensions, arrange a free initial consultation with one of our specialists.