Pension plans

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

Living France - - Contents -

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

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