QROPS Are Not A Get-Rich-Quick Pension Solution

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Written By Saeed Maleki

QROPS-Are-Not-A-Get-Rich-Quick-Pension-SolutionA Qualifying Recognised Overseas Pension Schemes (QROPS) sounds like the ideal solution to drawing down a pension in cash and escaping without paying any tax.

Online chat rooms and forums are buzzing with the possibility of slipping abroad for a year or so and switching any UK pension into a QROPS.

Then, so the chat goes, draw down the cash at a much lower income tax rate depending on where you are living, instead of paying at 20% or 40% in Britain.

Next, take the money and come back to Britain with a tidy nest-egg.

The trouble is, setting up and moving to another country as a tax resident is really not that easy.

Low-tax QROPS destinations

Two of the most popular low-tax destinations discussed as QROPS solutions are Gibraltar and Dubai.

Income tax on pension in Gibraltar is 2.5% and 0% in Dubai.

In the UK, drawing down a £100,000 pension pot will incur around £21,600 income tax – so the tax savings from relocating to Gibraltar or Dubai could be significant.

The problem is tax-avoidance rules would mean anyone popping overseas for a year or so to cash in their pension at a low income tax rate would undoubtedly face a hefty tax bill from HM Revenue & Customs (HMRC) on their return.

Generally, anyone who returns to the UK less than five years after leaving as an expat is not considered non-resident and has to pay any tax due on income or gains as if they were a UK resident for that time.

The logistics of relocating offshore are not simple either.

First, the problems of visas and citizenship are involved – together with looking for a place to live.

Self-supporting expats

Then, expats have to break their financial and many personal ties with the UK, like selling or letting their home, closing bank accounts, handing back driving licences and having limits imposed on the time they can spend in the UK each tax year.

Overseas, they need to set up medical care, bank accounts and register with immigration and tax authorities.

Many foreign governments happily accept self-supporting expats who can show they have they financial resources that will not make them a burden on the social services of their new home.

Generally, the expat’s new home will want to see an investment of around £600,000 in a business.

Another financial point to consider is the costs of transferring a pension. The UK provider, financial adviser and QROPS provider will all take a slice of the pension pie as fees and other charges.