British citizens who are living permanently abroad often struggle with finding the right investment option for their retirement funds. British pension plans tend to keep the money tied up within the UK, making it difficult for the expatriate to access his or her funds. When money is made available, it is heavily taxed and is delivered in British pounds. Pounds are often not the currency of choice for those living abroad, creating a problem. The British government has recently made provisions to make it easier for expats to access and use their money while residing outside of the UK.
A QROPS, or Qualified Recognized Pension Plan, is a relatively new investment option for British expatriates. This option became available to expatriates in April of 2006. The new regulations regarding QROPS allow British expatriates to move money from their UK pension plans to QROPS. The QROPS must be qualified and recognized, which means the government has agreed that it is a qualified plan. This allows the expatriate to put his or her funds into an account that is subject to fewer taxes, allows access to the money when needed, and provides a better form of currency.
This has led to the question of who is able to apply for QROPS. Under current tax law, this system is open to British citizens who are living overseas for an extended period of time. Those who hold UK pensions and are citizens of other countries are also able to transfer their money form the pension to a QROPS, provided they are no longer living in the UK. This means that individuals who have worked within the UK at any time, while maintaining their citizenship elsewhere, can apply for a QROPS, provided they are no longer living in the UK. The only people who cannot use a QROPS are United States citizens. At this time, Americans who hold UK pensions cannot use the QROPS program.
Money that is transferred into a QROPS can be accessed tax free if the fund is structured properly. However, this benefit is not available until the individual who owns the account has been out of the UK for at least five complete tax years. This stipulation keeps people from moving out of the country temporarily simply to access the tax benefits associated with a QROPS.
There are no minimum amounts required to transfer money from a UK pension plan to a QROPS, unless the QROPS itself sets these minimums. However, the cost of the transfer and the management of the account may prohibit those with small pensions from utilizing this tool. For instance, individuals with less than £150,000 may find that the cost of creating and maintaining the fund outweighs the tax benefits they will receive.
Why should those who qualify for QROPS consider making the transfer? Not only will the money in their pension now be available in a new currency, but it will also be available before they reach retirement age. Provided the individual has lived outside of the UK for the past five years, that money can be withdrawn from the QROPS free of UK pension taxes. This can mean that the full value of the pension funds is available to the expatriate. The taxes in the country where the fund is set up still must be paid, but choosing the right country can make these taxes close to nothing.
Money in a QROPS is also freed from UK inheritance taxes. For those who are working on their estate plans, this is a great incentive. By setting up a QROPS and transferring pension money to it from a UK pension, these individuals can protect more of their funds for their heirs when they die. Because of these great benefits, many British expats and others who hold British pension plans are looking to transfer their money out of the pension plan and into a QROPS.
Author Resource:-
Publicly-held, International financial services company, provides a complete range of offshore investment services and helps British expatriates apply for UK QROPS. http://www.lom.com
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