A QROPS (or Qualifying Overseas Pension Scheme) is a personal pension scheme set up outside of the UK (and regulated as a personal pension scheme in the country where it is established), but recognized by UK HMRC. Currently, a popular jurisdiction for QROPS is Malta (a member of the European Union).

QROPS can, in certain circumstances, have tax benefits for expatriates by removing the pension assets from the UK tax regime.

However, as a result of two key changes to pensions/tax legislation in the UK, the benefits of a QROPS over a UK SIPP for expatriates have significantly diminished. This is particularly the case for US residents/taxpayers.

The first and most recent change was announced in the UK Budget on 8 March 2017. From 9 March 2017, the UK now levies a 25% tax charge known as the Overseas Transfer Charge (OCF) on transfers to QROPS, save for certain exceptions. These exceptions are where:

  • both the individual and the pension scheme are in countries within the European Economic Area (EEA);
  • if outside the EEA, both the individual and the pension scheme are in the same country; or
  • the QROPS is an occupational pension scheme provided by the individual’s employer.

In addition, the transfer may become chargeable if, within the five complete tax years following the date of the transfer, the conditions which were met to make the transfer tax free cease to be met. If you reside in the US as a QROPS would be based outside of the US, the OTC charge would apply.

The second change was the introduction of increased pension flexibilities in the UK on 6 April 2015. For example, in the past a Malta QROPS enabled a person to draw their pension from age 50 and take a 25% cash lump sum. However, these benefits are no longer available in order for a QROPS to continue to qualify for UK purposes. Further, in the UK the 55% death tax that used to apply to pensions in certain circumstances no longer applies.

In addition, for US residents/taxpayers there are potentially significant US tax implications associated with undertaking a transfer from a UK pension to a QRPOS which should be fully considered with a tax advisor.

If you would like to learn more about QROPS, feel free to contact us for an initial consultation.