Setting Up A QROPS Step-by-Step
For many British expats living or preparing to live abroad permanently, taking the decision to start a QROPS is easy once the tax benefits are weighed against a standard UK pension scheme.
Although a QROPS – a Qualifying Recognised Offshore Pension Scheme – sounds complicated, the rules are quite straightforward. However we recommend reading as many independent articles as possible to get a solid understanding of how it can help you, read this other QROPS article.
The problems for most people come in picking the right provider in the right tax jurisdiction to maximise the advantages of the pension scheme and applying the rules to make sure they don’t break them and lose the advantages they have planned so hard to gain.
However much you think you are a savvy investor, always take best advice about a QROPS from an independent financial advisor experienced in this specialist pension sector.
Find out the transfer values of your investments from your current pension providers.
Some people have several funds after chopping and changing jobs and maybe setting up their own personal pension. All of these can go in to a QROPS, but any state pension is excluded.
Map out your future
This may be hard, depending on your age and circumstances.
If you are retiring, you probably have a pretty good idea of where you intend to live.
If you are younger and still working, where you want to go to work now may not be where you end up living.
Where you live may affect the tax you pay on income from your QROPS or investments you make from any lump sum you draw down. You do not have to live in the country where your QROPS is set up.
Choose a home for your QROPS
This is where best advice comes in – your financial advisor should be able to tell you which tax jurisdiction and which provider is most suited to your circumstances.
A current favourite is Guernsey, a Brit friendly jurisdiction with stability and low tax rates.
Consider the costs
Your advisor should tell you in advance of making any transfer switch what the likely costs will add up to – they should include his fees, the value of your transfer funds and the fees your current providers are deducting and any set up and ongoing management costs for your QROPS.
These fees will depend on the size of the fund you transfer. A QROPS transfer is generally most cost effective from a fund size of £150,000-£200,000 upwards.
QROPS solutions are available for smaller funds, starting from about £50,000.
Managing your investment
QROPS providers generally have a fund manager, but you can choose to be more hands-on and have more of say about your investments if you wish.
Unlike a UK pension that only allows investment in the London stock market and UK funds in Sterling, with a QROPS, investments are much broader based and are can be made in any currency.
A vehicle can also be set up within the QROPS to buy, manage and sell property.
How long does setting up a QROPS take?
Most transfers take up to 2 to 12 weeks.
Will a QROPS transfer mean an unauthorised payment charge?
Any funds transfer to a QROPS is a recognised transfer and no tax penalty is charged.
Sitting out the 5 year rule
For the first five tax years (April 6 one year to April 5 the following year) from setting up a QROPS, the fund manager must report any drawing of funds to HMRC.
After the end o0f the fifth tax year, this requirement is dropped providing the QROPS scheme member is not UK tax resident for the tax year the payment is made and has not been tax resident in any of the prior five years.
Use this checklist to discuss whether you meet the QROPS criteria with your financial advisor and make sure you go through all the points with him or her to make sure you have all the information you need to make your investment decision.
To get the very best advice we recommend speaking with the industry leaders. The leading company is call Qrops Adviser and can be found by following this link, QROPS. They will help you from start to finish and have offices all over the world.