Tax consequences of a QROPS pension
What are the tax consequences of getting a QROPS pension? The discussion only has meaning if you consider the starting point: what are the tax consequences of leaving your pension behind in the United Kingdom if you go abroad?
Leaving your pension behind in the UK means that the taxman takes his chunk out of it whenever you take a payment. It may also mean that you have to pay local taxes on the payments where you are.
A QROPS pension on the other hand, offers an alternative to this set up. The acronym stands for Qualifying Recognised Overseas Pension Scheme (QROPS advice), and means a pension scheme that can receive UK pension assets without attracting UK tax.
There are a couple of conditions attached, of course. Firstly, the taxpayer has to stay resident for tax purposes outside of the UK for at least 5 years following the transfer. Breaking this rule may mean having to hand a large cheque over to the taxman.
The second rule is that the QROPS pension must be an overseas scheme that has been approved by HMRC. Failure to abide by this one may also mean giving a large cheque to the taxman.
As long as the QROPS pension is on the list of schemes that HMRC has approved, it can be in a number of countries. So you are open to choose one that treats pensions favourably. You may end up paying tax on your pension payments in your country of residence, but from this perspective the tax may be no higher than what you would have paid had you been receiving them from the UK.
Perhaps the most significant tax benefit to be taken from a QROPS pension is the fact that they are all exempt from UK inheritance tax. Whilst you may have assumed that leaving the UK means that you leave the inheritance tax net, this is sadly not true, and many a British expat (or more accurately the loved ones they have left behind) have a come a cropper believing this.
QROPS pension can theoretically be chosen in countries that may allow the lawful and direct transfer of pension assets to beneficiaries without incurring any local taxes either.