“Generally speaking Qrops are essentially an overseas scheme operating within UK rules. A scheme cannot offer as a rule benefits which are better than the UK would offer in the first five year of non-UK tax residency,” insists Geraint Davies of Montfort International.
So as any UK pension holder can move money into them, Mr Davies argues Qrops has to be viewed as “a UK scheme operating inside an overseas retirement scheme”. There are some differences however.
“Members of a Qrops who have been ex-UK for five complete tax years may benefit from options more attractive than a UK scheme might offer,” he notes. “The real advantage might be taxation and social security rights.”
Amin Malik, director of Delta Financial Management, adds that the pension withdrawals from a UK drawdown arrangement are slightly different from Qrops/Qnups.
Assuming that Qrops are used only for transfers from UK registered pensions schemes and any additional contributions other than transfers are invested in Qnups, the following table from Mr Malik is a summary and comparisons of the various pension arrangements:
|UK registered pension scheme||Qrops||Qnups|
|Maximum lump sum||25%||30%||30%|
|Maximum income||120% of GAD||120% of GAD||120% of GAD|
|UK income tax relief on contributions||Yes||n/a||No|
|Restrictions to AA and LTA||Yes||No||No|
|Unauthorised payment charges||Yes||None after reporting ends||None|
|HMRC reporting||Ongoing||None after reporting ends||None|
The 120 per cent GAD (Government Actuaries Department rate) limit is based on the new limits as announced by the Chancellor in the last Autumn Statement, even though currently the limit is 100 per cent of GAD.
“Even though the Qrops are not subject to the UK pensions lifetime allowance, the initial transfer to the Qrops would have been tested against the LTA and any excess funds would have been subject to the LTA charge at the time of transfer,” says Mr Malik.
Also, pension payments from Qrops and Qnups are normally paid gross without deduction of income tax at source, whereas payments from UK schemes would generally be taxed at source if the individuals are UK resident.
However, explains Mr Malik, a UK registered pension scheme may instead be able to pay the pension payments gross for non-UK residents, but individuals would have to submit such an application.
“This would also be dependent upon the UK Double Taxation Treaty with the country in which the individuals are resident for tax purposes. Hence, Qrops members would have one less hassle to be concerned with but pension payments, albeit paid gross, would still be subject to income tax in the country in which the individuals are resident.”
Costs and fees of Qrops/Qnups are considerably higher than those of UK registered pension schemes, although for residents of countries where the scheme is based they tend to be charged no differently to local schemes.