If you’re an expat or have lived and worked overseas for any length of time, it’s likely that ensuring maximum tax efficiency concerning your pension and investment savings has been a high priority for you.
You may well have taken the opportunity to utilise one of the various schemes or investment opportunities that are often made available to people who are living outside the UK as an expat, or who are internationally mobile in their career and lifestyle.
The sort of schemes available will have been dependent on tax legislation and regimes based around where your fund was accrued, where you are living, and where could be most advantageous to invest it.
Many people have been encouraged to transfer their accrued pension assets to a different tax jurisdiction. While this can appear an attractive option, it can pose problems.
QROPS have always been a key part of financial planning for expats
A Qualifying Recognised Overseas Pension Scheme (QROPS) is an arrangement that HMRC regards as eligible for transfer from pension schemes registered in the UK. By transferring your pension to an overseas arrangement, your eventual retirement income may be subject to a more favourable tax rate than in the UK.
Before 2017, many internationally mobile people were encouraged to transfer their accrued UK pension into an offshore QROPS based in either Gibraltar or Malta.
At that time there were no residency requirements, so you had no obligation to be living in either of the locations and were able to simply make use of the favourable taxation rates applicable.
The 2017 Budget introduced a charge on the overseas transfer of pension assets
Such QROPS arrangements became less attractive in March 2017.
During the Budget statement at that time, the UK government introduced an Overseas Transfer Charge (OTC) that now applies to all pension transfers to QROPS unless the scheme is based in the country that the transferring member lives in.
The OTC is 25% of the value of the pension transfer and, because it is not seen to be a tax on income, it is not covered under any double-taxation treaty.
This means that any subsequent QROPS transfer to Gibraltar or Malta has been subject to a 25% tax charge unless you live in either of those jurisdictions.
Furthermore, even if you already have a pre-2017 QROPS arrangement in place, any subsequent transfer to the same scheme from a UK-based pension is subject to the same tax charge.
Transferring your QROPS to New Zealand could be an attractive option
We have been contacted by some clients who – before 2017 – were encouraged by other advice firms to make use of the QROPS facility in Malta or Gibraltar.
They are now in the situation that they have no further contact with their previous adviser and have a substantial fund in an overseas arrangement with little idea of how to go about drawing from the fund for income purposes.
For such clients who are now living in Australia, one solution that we have found effective from an income and tax planning perspective is to make use of the attractive tax opportunity available just across the Tasman Sea in New Zealand.
If you are not a tax resident of New Zealand, you may be able to transfer your accrued QROPS in Malta or Gibraltar to a QROPS there with no OTC being applicable.
Additionally, there is no limit on the amount you can transfer and no age restrictions.
Your pension assets can then be invested in an Australian dollar-denominated fund that will accumulate up to the time you want to retire, with no tax chargeable on the growth of the fund or on dividends, whereas in Australia these will attract a 15% tax charge.
When you do decide to retire, you can then make use of the double-taxation agreement between New Zealand and Australia to move your assets into a super fund, with all the associated tax advantages when you are drawing retirement income.
Expert advice is essential
As you can probably appreciate from reading this article, the subject of QROPS and transferring substantial pension funds between different tax jurisdictions is complicated.
Any mistakes can be costly, and could result in a very unwelcome tax charge, which on a large pension fund could be substantial.
We’ve often been approached by clients who have fallen foul of changes in tax legislation they were not aware of.
Because of this, we would strongly recommend you get expert advice. Having an expert in your corner who understands the different options relating to your personal circumstances can make a real difference.
Get in touch
If you have any queries regarding your financial planning, please get in touch with us.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of ATO and HMRC legislation, which is subject to change.
