How Expats Can Dodge Osborne’s Pension Tax Grab

The pension lifetime allowance decreases again in April – down £250,000 to £1 million and Chancellor George Osborne will snatch a tax penalty of 55% of the fund value from anyone breaking the limit.

The allowance is the amount of money any retirement saver is allowed to accumulate in pensions during their lifetime.

Figures from financial firm Aviva show that the tax trap could net up to a million workers earning £80,000 a year or more even though an assessment by the government puts the number at 55,000.

“Obviously not every high earner will face the lifetime allowance problem because not everyone will make full use of their allowances,” said an Aviva spokesman. “But this still leaves far more people than the government is suggesting who will fall foul of the savings cap.

QROPS a handy get-out

“And there’s nothing to stop the government reducing the lifetime pension allowance even lower if they feel the need.”

Expats have a handy get-out, providing their pensions have not yet broken through the lifetime allowance ceiling.

They can switch their UK pensions to an offshore Qualifying Recognised Overseas Pension Scheme (QROPS).

Although their retirement savings will be tested against the lifetime allowance, if the amount to transfer overseas is less than the lifetime allowance, no tax charge is due.

Once the fund is in a QROPS, the lifetime allowance does not apply, so fund growth can exceed £1 million without the risk of any tax penalty.

Flexible access with a QROPS

Retirement savers can consolidate any number of UK onshore pensions into a QROPS, although rules stop the transfer of public sector or civil service pensions.

QROPS operate similar to a UK SIPP, but with an increased range of investments.

The good news is QROPS are available wherever a British expat lives.  Although 41 financial centres offer almost 1,000 QROPS, some, such as Malta, Gibraltar and the Isle of Man allow expats to live wherever they wish while giving a home to their pension.

That means expats in places such as The Philippines, Malaysia, Singapore and Thailand can have all the benefits of a QROPS even though no providers are based in their countries.

For those seeking flexible access available on similar terms to onshore pensions, one Malta provider is offering the service already and several more intend to follow suit.

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