Personal Pension  

Expat tax changes to trigger rise in Qrops demand

The deVere Group has predicted a “significant” rise in demand for qualifying recognised overseas pension schemes should the government introduce plans to make expats pay tax on UK-earned income.

Chancellor George Osborne has proposed to prevent non-residents from offsetting income generated in the UK against their £10,000 personal allowance.

Under current rules, expats are able to offset income earned in Britain, such as income earned from renting out their properties, against the personal allowance.

But new measures, which are now out for consultation, could affect up to an estimated 400,000 expatriates, the deVere group said.

Nigel Green, deVere Group founder and chief executive, warned that should the government introduce these plans a growing number of British expats are likely to “sever financial ties with the UK”.

Mr Green’s independent financial advisory group has 80,000 mainly expatriate clients, and he warned that should this new rule come into effect, “there would be, typically, no real tax advantage for expats to invest in UK property or UK pension schemes”.

“If expats restructure their finances offshore, as I strongly suspect many will to take advantage of the important associated benefits, they will probably look to cut all what the Treasury is calling ‘strong economic connections’ to the UK - and this, for many, will include transferring their pensions out of Britain.

“As such, and because expat pensioners are those who would suffer the biggest hit from the proposed changes, there is likely to be a significant uptick in the already strong demand for HMRC-recognised qualifying recognised overseas pension schemes.”

Established by HMRC in April 2006, Qrops give expats greater tax efficiency, investment flexibility and a choice of currency in which the pension is paid out. Currently around 10,000 expats, or those who are imminently planning to reside overseas, move their pensions each year.

Speaking to FTAdviser, Mark Sanderson, chief operating officer at Brooklands Pensions, said: “Up until now Sipp has been the best choice for those international residents who are in the accumulation phase with decision as to whether Qrops is appropriate coming at the point of retirement.

“This year’s Budget proposals have seen the attractiveness of UK Sipp increase dramatically and so there will now be many circumstances in which international residents will be better off sticking with their UK pension scheme.

“Qrops will still have a place but it will become much more of a niche product and the decision will largely depend on where the member will retire.”