Qualified Recognised Overseas Pension Schemes – QROPS

Following revisions to the UK Finance Act in April 2006, HM Revenue and Customs (HMRC) has allowed individuals to transfer their UK pension funds to a Qualifying Recognised Overseas Pension Scheme (‘QROPS’) based in another jurisdiction. Prior to this date, individuals leaving the UK could only transfer their UK pension scheme to another jurisdiction if a reciprocal agreement regarding pension transfers existed between that jurisdiction and the UK revenue.

Malta, as a jurisdiction, has been approved by HMRC as providing the right statutory platform for QROPS.

Following changes to UK pension legislation, UK expatriates and UK non-domiciled individuals who have worked in the UK now have to consider some of the wider tax implications – including potential exposure to unauthorised payment charges, scheme sanction charges and other potential fiscal penalties that may be applied to a UK pension scheme. In addition to these penalties, UK IHT can also now apply to any funds left in a UK registered pension scheme upon death.

Importantly, IHT and penalty charges may be applied upon death after the age of 75 and, if you have elected not to purchase an annuity, can add up to a near 82% tax on your residual pension fund.

Benefits of a Malta QROPS

In order to transfer UK pension rights to a QROPS, the member must prove to HMRC that he has either left the UK and taken up domicile overseas or is in the process of doing so. Provided that the member meets this test and effectively becomes non-resident for UK tax, pension rights may be transferred outside of the UK to an approved scheme.

Once a QROPS provider meets HMRC reporting requirements for a minimum of 5 years, the pension fund generally becomes subject to the full laws of the relevant overseas jurisdiction. Therefore, this means you can take your benefits in line with the appropriate pension legislation.

The key attractions of a Malta QROPS to any individual with UK pension funds, who is living or planning to live outside of the UK, include:

  • No requirement to purchase an annuity;
  • A tax free lump sum of up to 25% of the fund can be taken;
  • Flexibility in terms of how and when you take your benefits;
  • Greater choice of investment options, including bank deposits, stocks & shares;
  • A robust but flexible legislation;
  • An approachable, efficient single regulator for Maltese Financial Services;

A favourable tax regime which provides long term stability and which is also backed up by tax treaties with over 46 countries. Income of retirement schemes established in Malta other than income arising from immovable property held in Malta, is generally exempt from Malta tax;

As an EU Member state, Malta’s legislation conforms with EU directives.

Taking benefits – retirement age

At present, the normal retirement age is 65 but payment of benefits may commence at the early retirement age of 55. At retirement age, a member may drawn down a Pension Commencement Lump Sum equivalent to 25% provided that no such benefit has been previously availed of in the UK. The remaining balance of the plan will then be used to provide the member with regular retirement income or life. This income may take the form of income drawdown, a fixed annuity, or a combination of both. There is no requirement to purchase a fixed annuity.

QNUPS Qualifying Non UK Pension Scheme

QNUPS were introduced in UK legislation in February 2010 and exempts qualifying overseas pension schemes from UK Inheritance tax. In order to attain QNUPS recognition, pension schemes must meet certain criteria but must primarily be based overseas.

Any person who is either resident in the UK or who may be resident elsewhere but has retained UK domicile may qualify for QNUPS. The principal attraction is that since QNUPS are exempt from UK Inheritance Tax (IHT), members are able to preserve their assets and pass them on to their heirs intact. Another advantage is that contrary to other pension schemes, QNUPS can accept payment of funds that have not been earned from employment. In fact you can transfer practically any asset to a qualifying scheme including residential property and fine wines, antiques and similar assets that are not traditionally associated with pensions. There is also no obligation to make regular contributions to the scheme nor is there any age limit by which such payments must be made.

In common with UK pension rules, benefits can usually only be accessed upon attaining at least the early retirement age of 55, however it may be possible to obtain a loan from the scheme before that age.