QROPS and taxes
Income from UK pension arrangements is subject to UK Income Tax. It is collected as a withholding tax, which from April 2008 will be at 20%. This tax is applied to everyone in receipt of UK pension income whether or not they live in the UK and with no exemption for foreign nationals.
Transferring UK pension rights to a QROPS scheme means that UK Income Tax on pension income can be legitimately avoided.
UK pension rights that are transferred to a QROPS are also taken outside the UK Inheritance Tax net, which can result in a significant succession planning benefit. One form of UK pension arrangement levies a combined 82% tax and penalty charge on the death of the pension plan holder.
The Inheritance Tax exemption that applies on the death of the first spouse or civil partner does not apply if the survivor is not UK domiciled. In this case, instead of being able to transfer the whole of the estate of the deceased partner/spouse to the survivor free of IHT, the amount of estate that can be transferred free of IHT is limited to the nil rate band (currently GBP 312,000 for the tax year 2008/09) plus an additional GBP 55,000.
QROPS can ensure that expats with a spouse or civil partner who is not British do not suffer this form of death tax discrimination.
For more information please email us.