Living abroad? Avoid the new LTA limit with QROPS

Photo of author
Written By Saeed Maleki

Living abroad? Avoid the new LTA limit with QROPSCurrently, pension savers are allowed to save up to GBP 1.5 million in their pension pots before they have to pay up to 55% in punitive taxes.

But come April 2014, the upper limit – the Lifetime Allowance (LTA) – will be reduced to GBP 1.25 million.

According to estimates from HM Revenue & Customs (HMRC), this means around 360,000 savers such as teachers, doctors and private sector managers will face a tax bill equivalent to several years’ salary.

Anyone who fails to protect themselves from the lower ceiling – if they have already reached the current, pre-April 2014 limit – will have to pay a tax bill of around GBP 137,500.

In addition, an individual currently in their 40s or 50s with a pension of around GBP 300,000 will be hit by the lower limit by the time they reach retirement.

Expatriate status

With Britain’s spiralling cost of living, and the diminishing age-related benefits, it is perhaps not surprising that almost half of all British retirees are considering a move overseas

High taxes, creeping inflation, and low interest rates are all compounding the situation.

Not only do Britons who move overseas typically enjoy lower living costs, astute savers can benefit from specialist financial vehicles which allow you to take financial advantage of your expatriate status.

Among these vehicles are HMRC-recognised QROPS, or Qualifying Recognised Overseas Pension Schemes.

QROPS allow you to mitigate the UK’s inheritance, which can be as high as 55%, access a much wider variety of more flexible investments, have your pension income paid in the currency of your choice and enjoy up to 30% of your fund as a cash free lump sum.

With regards to the proposed, lower, LTA, if you transfer your pension pot into a QROPS before you reach the upper limit, you will also avoid paying the LTA taxes on your fund.

This is because a pension transfer into a QROPS is seen as a benefit cyrstallation event – meaning after the transfer, your pension is not subject to Britain’s strict income and tax regulations; only some reporting requirements.

Therefore even if your fund swells beyond the upper limit after the transfer, you will not be liable to pay the LTA taxes – often making quick action of the upmost importance.

However, whilst the above factors often make QROPS the best choice for expatriates, in some instances it is not advisable or possible to transfer your pension.

For example, if you have purchased an annuity you cannot transfer.

It is therefore imperative you take professional advice from an independent financial advisor, who can not only outline whether a QROPS is the best option for you; but highlight which QROPS is best for you.

To be put in touch with a qualified financial advisor with QROPS experience, please contact us for a referral.