Should Expats Opt for A QROPS Or A SIPP?

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Written By Mahmoud Sarvari

If you are an expat and confused about the difference between a SIPP and a QROPS, here are some of the questions most asked about them explained.

No doubt the terms are familiar because friends or colleagues may have investments in one.

What is a SIPP?

SIPP stands for self-invested personal pension and is a pension that lets a saver manage their investments.

SIPPS are direct contribution pensions, which means the value of any benefits paid are based on the fund value rather than length of service or final salary.

The pensions come with pension relief on money paid in by UK residents.

Expats can pay into a SIPP, but lose the tax relief on their contributions.

What is a QROPS?

QROPS stands for Qualifying Recognised Overseas Pension Scheme and is a pension for non-UK residents that is similar to a SIPP.

QROPS are direct contribution schemes but contributions do not attract pension relief, although funds transferred from the UK which already have relief keep the extra cash.

Non-residents can hold a QROPS, but the rules forbid UK residents from opening one unless they are shortly due to leave the country.

What’s the difference between a QROPS and SIPP?

The pensions have several differences:

  • Besides the relief on contributions, QROPS also allow unspent funds to pass to beneficiaries without tax when the pension owner dies.
  • After transfer, providing the fund is less than the £1 million lifetime allowance (2017-18), investments can grow to any amount in a QROPS without tax penalty.

In a SIPP any savings over the £1m cap are subject to tax penalties.

  • SIPPS pay benefits net of tax deducted in the UK, while QROPS pay gross so local income taxes apply
  • SIPPS tend to pay in GB Sterling, while QROPS can pay in a number of currencies, which helps with hedging against moving currency exchange rates

How do expats work out tax residence?

Expat tax status is not based on simply moving countries for a while, a list of complex rules apply to decide if someone is tax resident in the UK or elsewhere.

A professional IFA with a background in QROPS and SIPPs can help you decide where you are tax resident and the best pension package to suit your personal financial circumstances.