ROPS Lifetime Allowance

Commonly known as QROPS – Qualifying Regulated Overseas Pension Scheme

A QROPS is an overseas pension scheme that meets requirements set by HMRC. A QROPS under current legislation is not subject to lifetime allowance assessment although this can be changed by HMRC. It does not matter whether the individual lives in or outside the UK and so, in effect there is no ROPS lifetime allowance. QROPS can receive the transfer of UK Pension Benefits without incurring an unauthorised payment and scheme sanction charge. QROPS allow similar investments within the fund as SIPPs but do have a greater choice that may suit the experienced or professional investor.
Please be aware that QROPS are really not suitable for some countries and some investors and also can lead to other taxes being imposed that are avoided through maintaining a UK pension scheme.

Requirements for Recognised Overseas Pension Schemes

They must:

be established in a Member State of the European Union, Norway, Liechtenstein or Iceland, India, and the United States. (HM Revenue and Custom’s legislation on these jurisdictions is regularly updated to monitor and improve the system – with non-conformity meaning a whole country can be de-listed.)

be established in a country or territory with which the UK has a Double Taxation Agreement (DTA) that contains exchange of information and non-discrimination provisions. Schemes established outside of the EEA that are not regulated as a pension scheme by a body in their home country must be operated by a pension provider that is regulated to provide pensions and is regulated to provide the scheme.

ensure membership of the scheme is open to persons resident in the country or territory in which it is established.

The rules state that pension benefits arising from UK tax relieved funds must be payable no earlier than they would have been under the UK registered pension scheme rules.

QROPS may allow, up to 30% as a PCLS if non-UK resident for more than 5 full tax years.

However, those that adapt their rules to adopt the UK pension flexibility rules may limit the PCLS to 25%.

QROPS holders that later become UK residents will be governed by the UK pension rules in full and lose any “QROPS benefits”.

Points to note

1. QROPs can be a useful tool in our overall pension planning as it can be used to minimise the effects of the lifetime allowance. However, HMRC can often review such planning and take actions that retrospectively nullify such planning so caution should be applied.

2. Once transferred, the ROPS is no longer restricted by the Lifetime Allowance and is free to grow without incurring a tax charge for exceeding the limit.

3. Those pensions with protected tax free cash may be restricted to 30% or 25% of the fund (depending upon jurisdiction) as a non-taxable lump sum after transfer – which may be less than the percentage allowed under the existing pension . In some cases, pre 2006 UK pensions may pay out up to 100% without payment of UK income tax.

4. QROPS is not a method to avoid all taxes and can lead to greater taxes being imposed in countries where you live as they may not be recognised in that country.

5. If you return to the UK, then your QROPS becomes subject to UK rules as if it were a UK pension. If you are planning on retiring in the UK, or if you or your partner will return in the event of the death of one of you, then it is likely a QROPS is not the best solution for you in many instances.

Be Aware!

Once the scheme owner has been non-UK resident for more than 5 full tax years, all death benefits paid out after the age of 75 will be free from UK tax, but may be taxed in the hands of the beneficiaries, subject to the relevant Double Tax Treaty and location of the beneficiaries.

Many of the previously advertised advantages of QROPS have been removed. The main benefit of QROPS is linked to Double Tax Treaty arrangements where the UK agreement could result in higher taxation than the alternative QROPS on the individual settlor, or where the fund is likely to exceed the current Lifetime Allowance at the time the individual is seeking funds over the age of 55.

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Everything you need to know

When is the Lifetime Allowance assessed?

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How is the Lifetime Allowance calculated?

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Lifetime Allowance rules

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UK Lifetime Allowance protections

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ROPS Lifetime Allowance

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How will Lifetime Allowance affect me?

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Defined benefit Lifetime Allowance calculations

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Actions to avoid breaching Lifetime Allowance

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