Offshore Pension Perks For UK 50% Super Tax Exiles
If you are a top earner looking to move overseas to avoid the 50% income super tax rate that comes in to force from April 2010, then don’t forget to take pension planning in to account if you go. A QROPS Pension could save you a bundle!
Introducing the new tax threshold is a catalyst for looking at the rest of your finances.
Moving abroad to save tax on an income of £150,000 per year plus is one thing – but its short sighted not to look at the opportunities the move offers.
Like they say, when one door closes another opens, and if you are moving abroad permanently and intend to retire outside the UK, then top of your tax-planning list is taking your pension offshore as well.
The irony of becoming an expat to avoid income tax is HM Revenue and Customs has helped establish a number of offshore pension schemes called a QROPS – that stands for Qualifying Recognised Overseas Pension Scheme – and switching your UK pension in to a QROPS scheme can lead to huge tax benefits over leaving your pension at home.
As soon as you start looking at offshore pensions and investments, beware the rogue traders.
QROPS Advice
All sorts of extravagant offers are available – but the fact is that if they don’t meet HMRC guidelines and have high upfront costs, they are likely to fee earners for the advisors rather than financial solutions for clients and could well leave you facing hefty tax penalties in the future.
Take advice from a UK regulated independent financial advisor who has a pedigree in dealing with offshore clients. This way you have the protection of the Financial Services Authority if you are missold a product or do not receive the best advice.
The advisor will want some key information from you:
· Up-to-the-minute fund statements for any pensions – in the UK or offshore
· The tax jurisdiction where you plan to live or retire
· Your financial goals, like generating an income from your pension or whether you intend to reinvest the proceeds
· Your investment drivers – how much you intend to contribute to your pension and what sort of risks you are prepared to take as higher risks generate larger returns
· Your intentions regarding estate planning
Setting up a QROPS pension may look complex at the outset, but it’s really not much different from doing the same in the UK except the advisor has to take in to account the tax implications of the country where you set up your QROPS and the country where you intend to live if it’s different.
QROPS Pension Benefits
The real benefits of the scheme can have a huge impact on even modest pension funds:
· Top of the list is removal of an obligation to buy an annuity that pays a miserly rate of interest and means your pension pot dies with you.
· You can take 25-30% of your total pension fund tax-free and keep the remainder invested providing a much-improved return on investment than an annuity.
· The knock-on effect of no annuity is you still own the pension fund on your death and with some deft estate planning, inheritance tax can be minimised so the fund can be passed on to your family or loved ones.
· You gain the chance to put your cash in to a wider range of investments, as a QROPS has no investment restrictions like a UK pension plan.
Many of the other rules are similar to those of UK pension schemes for the first five complete tax years the scheme is running.
This means if you leave the UK in November 2009, the five year reporting period the fund provider is obliged to maintain with HMRC regarding cash withdrawals from the pension starts on April 6, 2010 and ends on April 5, 2015.
After that, the scheme provider has no obligation to HMRC unless you take up UK residence.
The complications of a QROPS pension are the cross-border tax and currency implications between the UK, the country where your QROPS is set up and the country where you live.
That’s why you need a top rate advisor with a lot of experience in setting up QROPS pension
schemes and building in regular reviews to make sure your QROPS pension is always working as hard as possible to make you money.
While you are relaxing watching the sun go down from your new home overseas, raise a glass to Chancellor Alistair Darling who takes away with one hand and doesn’t realise how much he is giving with the other.
