Time is running out for expat pension savers who want to shift their UK pots into an offshore Qualifying Recognised Overseas Pension Scheme (QROPS) before new cash limits come into force.
From April 6, the government is making two major changes to UK pensions.
The lifetime allowance decreases from £1.25 million to £1 million. Retirement savers with UK funds that breach this limit at any time after April 6, 2016 face tax penalties of 55% of their fund.
Even if contributions fall far short of this amount, if the fund grows to exceed the limit, the fine comes into play.
Secondly, those earning more than £150,000 a year lose the right to contribute £40,000 a year into their pension.
No lifetime allowance for QROPS
For those earning between £150,000 and £210,000, the annual contribution level tapers down to £10,000 a year.
The lifetime allowance change is important to expats who to switch their UK pensions to a QROPS.
When the switch is made, HM Revenue & Customs (HMRC) tests the funds to ensure they have not breached the lifetime allowance.
If they have, the tax charge is triggered and if they have not, the money goes into the overseas QROPS.
However, once in the QROPS, no lifetime allowance applies, so the fund can grow to any size without penalty.
If you are an expat and face problems keeping within the new lifetime allowance limit, now is as good a time as any to consider a transfer -and with most transfers taking several weeks, time is running out for the current tax year, which ends on April 5.
Who can open a QROPS?
To qualify for a QROPS transfer, a retirement saver must not be a UK tax resident.
They do not have to be British, anyone from another country who has worked in the UK and accrued money in an onshore fund is entitled to transfer the money to a QROPS as well.
The main exception is any retirement saver with a public sector or civil service pension. QROPS rules exclude the transfer of these pensions.
If you live in a country without a QROPS provider, that’s not a problem.
Several popular financial centres cater for these transfers – such as Malta, Gibraltar and the Isle of Man.
Many of the 250 QROPS available in these places allow retirement savers to live in any country while basing their pension with them.