QROPS Withdrawal Rules Explained
One of the biggest draws of a Qualified Recognised Overseas Pension Scheme (QROPS) is the ability to withdraw money in a more flexible and convenient way. For example, from the age of 55, you have the ability to withdraw a tax-free lump sum of up to 30% of your total pot. You are under no obligation to have the QROPS based in the same country in which you are resident, allowing you to find the combination that works best for you, wherever in the world you are.
However, before you sign on the dotted line, you need to be fully aware of the QROPS withdrawal rules. We have outlined the key points below but please do get in touch with Mathstone if you have any further questions or wish to discuss a QROPS in more detail.
What Are The QROPS Withdrawal Rules?
As we’ve mentioned, you can withdraw a 30% tax-free lump sum from your QROPS once you’ve turned 55. This initial lump sum is known as the Pension Commencement Lump Sum (PCLS).
If you are a high earner and would normally expect to pay up to 45% in income tax, the QROPS removes that tax requirement after 5 years. This is often referred to as the Five Years Rule.
When you come to withdraw money from your QROPS, whether it’s the PCLS or a smaller payment, you have greater control of the currency. Unlike a UK pension fund which can only dispense pound sterlings, a QROPS can be used to withdraw money in a wide range of currencies. This is ideal for making the most of any favourable exchange rate.
Transferring To A QROPS
In 2017, a number of key changes were made to the regulation surrounding QROPS in order to guard against individuals avoiding pension benefits taxation. From the 9th March, transfers to a QROPS became subject to an up to 25% tax charge. However, a number of exception cases were outlined by the UK government:
The QROPS is based in the same country in which you are resident
The QROPS is based in a country within the Europeane Economic Area (EEA) and you are also resident in an EEA
Both you and the QROPS are based in countries within the European Economic Area (EEA). They do not need to be the same country.
Your QROPS is an overseas public service scheme
Your QROPS is an occupational pension scheme
Your QROPS is an international organisation’s pension scheme
If you are unable to provide the correct information prior to the transfer taking place, the 25% tax charge will be applied and you will need to apply for a refund retrospectively. Should you no longer fit in one of the above exemption categories within 5 years of the transfer, you may be compelled to pay the 25% tax charge.
As a result of these changes, a number of QROPS schemes have been removed from HMRC’s approved list as they no longer meet the necessary standards and conditions.
For the 10 years after the transfer has been made, you will be required to continue reporting to HMRC. Should you return to the UK within those 10 years, then you will have to fulfill the UK’s pension regulations once again.
If you are interested in discussing QROPS withdrawal rules in more detail, or are seeking independent financial advice on your investment choices, please do get in touch.
Please note that some of the information on this page is only applicable to UK residents.