Transferring a UK pension to a Qualifying Recognised Overseas Pension Scheme (QROPS) has benefits but there are a number of important issues for Frenchresident expats to be aware of, as Robert Kent explains
The issues to be aware of if you’re considering transferring your UK pension to a QROPS
Are you one of the many people who have accumulated several pensions over your working life and are now wondering how to manage them all simply? Added to the administration woes is the fact that everything is in sterling. The UK currency may not be the favoured currency of the moment, given the political situation, so the possibility to access the local currency in your new home country may be attractive. There may also be concerns about financial consequences of leaving an array of pensions to your beneficiaries.
In April 2006 the QROPS (Qualifying Recognised Overseas Pension Scheme) was created, the result of EU legislation citing that pensions needed to have portability within the zone. The positives of using a QROPS are: • The possibility of denominating your pension in euros • The ability to leave the value to your family • Avoidance of UK inheritance tax
A QROPS appears to be an attractive solution; all the boxes ticked, issues solved, thank you and goodbye! However, there are some grey areas to contemplate. IS IT A PENSION? There is a considerable risk that a QROPS may not be considered as a pension. In the past we tried working with the French administration fiscale ( fisc) and a company in Malta, to design a workable structure for French residents. In the end the project had to be dropped as the fisc took the view that if a QROP, in any way, fell outside of the rules that applied to a French PERP (a French private pension), they would not view it as a pension, and merely as a pot of money. Given that I viewed a PERP as less flexible than a UK SIPP, and QROPS were way more open, the project seemed worthless. I questioned this logic and still do. No matter how questionable, however, it creates a grey area. The risk of merely not being a pension does not appear to be a huge concern. “So, what if I lose the 10% allowance given to pension income”, I hear you say. Not a problem if you can live with this minimal risk – but there’s more. QROPS ARE USUALLY IN A TRUST If a French resident puts capital in a trust, which is not perceived as a pension (see last point) then there is a far more significant issue. French residents placing capital into trusts are considered as gifting to a non-relative and will be taxed at 60% of the value given.
If there is even a slight risk that our clients might lose more than half of their life savings, we consider this worth highlighting extremely clearly. Not surprisingly, not a single person was interested in a QROPS after comprehending the potential risk, no matter how remote it may be.
Moreover, those not declaring a trust will be subject to a penalty, which will amount to the higher of €20,000 or 12.5% of the trust value. OTHER POTENTIAL ISSUES TO CONSIDER I started by mentioning the EU and so I also need to talk about Brexit and what that means. The answer, as is often the case with Brexit, is that no one has any firm knowledge of what will happen next (though you will read plenty of opinion aired as fact), so we are left with the joys of Brexit conjecture.
The argument is that if the QROPS is in the EU, all should be fine; as long as it happens before the UK leaves. The fact it is not a certainty causes concern.
Moreover, one has to be careful of the constantly changing landscape of laws and regulations around QROPS. There was a large QROPS in Asia which was suddenly closed down, as it was declared to be in breach of the rules set by the HM Revenue & Customs, leaving investors high and dry. In fact, the provider won its case against the HMRC, but this caused investors significant issues as this was long after the structure’s closure.
We have seen special penalties
In April 2006 the QROPS (Qualifying Recognised Overseas Pension Scheme) was created, the result of EU legislation citing that pensions needed to have portability within the zone
applied for certain QROPS of 25% if not ‘appropriately located’ and even 55% if not structured properly. I have other concerns around QROPS, which are more to do with my opinion of the QROPS market, rather than any legality of the structure itself. All of this uncertainty surrounding QROPS makes me uncomfortable with their use for French residents.
We have seen companies suggesting that a QROPS is a good easy first step to an assurance vie, thus the catalyst for being recommended. The ‘spin’ for doing this is that if the money is in a QROPS and not a UK pension, there are tax advantages. While a UK pension will apply emergency of 20% tax to 75% of the capital, if you crystalise its value, a QROPS will apply no tax at all.
IS IT WORTH CONSIDERING?
This sounds like a brilliant scheme, however, it does not actually save you a single cent of tax. As a non-UK resident, one can simply and quickly claim the tax back with an easy form. Normally, the tax is returned in around three to four weeks.
The cost of setting up the QROPS may run to thousands, so you have to ask
yourself whether you are willing to pay thousands to the happy financial adviser to avoid filling out an HMRC form to get the tax back and then more to set up an assurance vie with the same money, meaning the adviser is paid twice.
One of the downsides of a QROPS used to be that, if it was viewed as a pot of money, it also became wealth taxable. This problem has disappeared, as long as the QROPS is not invested in property, since capital is no longer an issue as wealth tax is now only applied to property.
In conclusion, my mantra is always ‘deal with certainty as far as possible’, so a QROPS would need to be the best and only option to recommend it.
This is not to say that QROPS are off the table but absolute honesty and openness is essential. People need to have all the information available (grey areas included) before they can make an intelligent and informed decision. So far the grey areas causing uncertainty, giving rise to risk, have always dissuaded people.
It is best to fully comprehend all of the options for your pension, but do tread very carefully and never let yourself be pressed to make up your mind.
There are options where you can have absolute certainty, so be sure to consider these before doing anything. Ensure that you take advice from a French qualified professional who understands all the potential consequences of any choices and is open and honest enough to share them with you. Robert Kent is managing director of Kentingtons Tax & Investment Consultants kentingtons.com