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UK Pension transfers – ‘rest of world’

The UK Government has clamped down very hard on the transfer of UK pensions to most non-EEA countries and international ‘company’ pension schemes, as they are incompatible with UK rules.

However, the good news, is that residents in every part of the world do still have the option to transfer, consolidate and ensure they get best value from their UK pensions in pension plans that are approved and are compatible with the UK regulations.

New regulations for International Pension transfers, known as QROPS or ROPS, were introduced from March 9th, 2017 for those living outside of the EEA who transferred a UK pension to an international scheme. This introduced a 25% tax penalty for QROPS for non-EEA residents. This made transfers to QROPS uneconomical and inadvisable for most non-EEA residents.

Of course, a transfer to a specialist UK scheme is still available and has strong benefits over ‘Defined Benefit’ schemes, especially with regards death benefits, access to capital and income flexibility. So, speak to us for advice on which type of transfer suits your circumstances.

There are considerable benefits of transfer from frozen UK company pensions to the new, more flexible, UK Personal Pensions. These benefits include:

  • A flexible Pension approved scheme under the UK Government/HMRC Rules
  • No tax charge or tax penalty for UK transfers
  • Security of Investment with UK approved Trustees
  • The FULL capital value of the fund can be passed to your spouse on death
  • The FULL capital value of the fund can be left as an inheritance, free of UK Inheritance Tax, to children/chosen beneficiaries
  • You have full control over investment, currency and income decisions
  • You can access 25% of the fund as a Pension Lump Sum from age 55
  • You can draw income from age 55 WITHOUT early retirement penalties
  • The capital remains an asset of the holder – thereby ensuring YOU direct monies to your chosen beneficiaries, in full.
  • Flexibility of drawdown options including full withdrawal of fund at retirement
  • Amalgamation/consolidation of schemes
  • Total compatibility with UK rules should you return to the UK!

So, the good news is that you CAN transfer your UK company pensions to a UK recognised and approved alternative that IS suitable for residents in any part of the world, without a tax penalty.
Now is a good time to consider a transfer of frozen UK pensions because the transfer values of Defined Benefit (Final Salary) Pensions are still unusually high. This is because transfer values are based on Gilts and the significant drop in Gilt yields after Brexit has forced transfer values to all-time highs!

TAX POSITION

RESIDENCY

Each country has its own rules when it comes to when an individual is considered a tax resident. We have access to the rules of over 70 countries Worldwide and can give guidance on many.
Tax residency is usually determined by the individual establishing residential ties, the location and residency of your spouse/partner, dependants and contract of employment or financial interest.

 

TAXATION BASIS

Again, each country’s tax system at the state/federal or provincial levels is different. We can give guidance on how UK pensions are taxed in over 70 countries Worldwide. Contact us accordingly.

Where an individual is resident in more than one country, the DTA with that other country will determine the individual’s tax residency and the country which has the primary right to tax the pension proceeds. If there is no DTA, local advice will be required.

TAXATION OF PENSION INCOME

Taxable income includes pension income in the majority of countries. Residents are generally required to include in their income any and all amounts received as a “superannuation” or “pension benefit”.
Additionally, many countries require the reporting of ‘lump sums’ received from foreign pensions as although the Pension Commencement Lump Sum, for example, is deemed tax free in the UK, it is NOT tax exempt in all countries.
However, it’s worth doing your homework because some countries have VERY attractive taxation on foreign pension income! For example, if you retire to Cyprus with a Malta QROPS you pay no tax on the pension income, based on the Double Taxation Agreement between these countries.
Portugal currently has a 10-year tax free period for residents drawing a UK pension and UAE has no income tax! Again, you should contact us for guidance.

FOREIGN TAX CREDIT

A foreign tax credit is sometimes available by residents of one country for tax paid in that country to the foreign jurisdiction where a DTA is in place. Even if there is no double taxation agreement, tax relief may be available by means of a tax credit. For example, if you pay tax at 15% on your foreign income in the country in which the income arises, then you may still have to pay tax in the UK. If the UK tax rate is 20%, you would only have to pay 5% of tax in the UK, as you would be given relief for the 15% of tax paid overseas.
Check if a DTA exists between the countries in which you reside and pay tax as this will detail what credits, rebates and allowances you are due.

UK INCOME TAX DURING LIFETIME OF MEMBER

From 6 April 2015, new rules were introduced which improve the flexibility with which access to UK Personal Pensions can be achieved. This flexibility is NOT afforded to Defined Benefit pensions, which is one reason that many Expats consider a pension transfer.

Generally, 25% can be taken UK tax free and the remaining 75% (whether income from an annuity, drawdown, or lump-sum) will be taxable at your marginal rates of UK tax up to the top rate of 45%.

UK residents are liable to UK tax on such income and, generally, non-UK residents are subject to UK income tax on UK source income too. Therefore, if you are non-UK resident and receive a payment from a UK Registered Pension Scheme, assuming the payment is not within your 25% tax free amount, it is liable to UK tax at your marginal rate, unless a Double Tax Agreement (DTA) exists with your country of residence and the UK provides exemption from UK tax on such income.

UK TAX ON PAYMENT OF PENSION DEATH BENEFITS

From 6 April 2015, the UK tax treatment of benefits from Person Pension schemes on death depends, amongst other things, on the age of the member at the time of death i.e. if the individual is pre or post age 75. By planning your pension benefits this tax can be mitigated.

UK DTA’s

There are Double Taxation Agreements/International Tax Treaties between the UK and around 150 other countries.

You can check if a DTA exists at https://www.gov.uk/government/collections/tax-treaties or where you are resident in other countries their own websites are usually very helpful regarding taxation and DTA’s with other countries.

TAX POSITION ON TRANSFER OF A UK PENSION

The UK regulations implemented from 9th March 2017 covering transfer of UK pensions to a country NOT in the EU/EEA levy’s a 25% tax penalty for transfers to QROPS/ROPS. However, NO tax penalty applies where the transfer is to a UK based Self Invested Pension, so you CAN take advantage of the new rules on flexible pensions.

EXISTING QROPS

If you transferred UK pensions to a QROPS before the 9th March 2017 your tax position will rely upon the jurisdiction where the pension is held. The choices are most commonly Gibraltar and Malta.

GIBRALTAR is a British Overseas Territory represented in the EU by the UK but has no DTA’s with other countries. The QROPS pension payments to you would therefore be taxable in Gibraltar at a standard rate of 2.5%. This is not recoverable.

There is no UK income tax if you are non-UK resident (for at least 5 full tax years irrespective of the amount, or less than 5 years with total withdrawals in the non-resident period below £100,000).
There is no Gibraltar Inheritance Tax. You have protection from UK IHT. There should be no Lifetime Allowance (LTA) concerns as the transfer was measured against the LTA upon transfer to QROPS.

Protection from UK death benefit charges, if non-UK resident (and non-UK resident for last 5 tax years before payment).

MALTA does have DTA’s with numerous countries. This should ensure that pensions and annuities arising in Malta and paid to a resident of another country may be taxed in that country. However, you should check the Malta DTA list at: - https://www.mfsa.com.mt/pages/viewcontent.aspx?id=196  

There is no UK income tax if you are non-UK resident (for at least 5 full tax years irrespective of the amount, or less than 5 years with total withdrawals in the non-resident period below £100,000).

There should be no LifeTime Allowance concerns as the transfer was measured against the LTA upon transfer to QROPS.

There is no Maltese Inheritance Tax. You have protection from UK IHT.

Protection from UK death benefit charges, if non-UK resident (and non-UK resident for last 5 tax years before payment).

The information contained in this Site is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. The author is not giving direct legal or tax advice and the information contained on the site should not be acted upon without seeking professional advice.

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