Personal PensionJan 21 2019

Understanding Qrops and transfers from UK pensions

  • Identify what a Qrops is and the conditions that must be met by a Rops.
  • Describe the transfer process from a UK registered pension scheme to a Qrops.
  • List what five conditions are used to assess an overseas transfer charge and what needs to be known about the lifetime allowance.
  • Identify what a Qrops is and the conditions that must be met by a Rops.
  • Describe the transfer process from a UK registered pension scheme to a Qrops.
  • List what five conditions are used to assess an overseas transfer charge and what needs to be known about the lifetime allowance.
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Understanding Qrops and transfers from UK pensions

The Qualifying Recognised Overseas Pension Scheme (Qrops) system was first introduced in April 2006.  

It was designed to allow individuals permanently living overseas to simplify their affairs and enable them to continue to save to provide an income for retirement by transferring their UK pensions to a pension based in their new country of residence.

The system was intended to limit the lump sum and pension benefits available to the transferring individual to be broadly equivalent to the benefits that would have been available to them had they left their pension in the UK. 

The government provides tax relief on contributions made to UK registered pension schemes, and investments made within those schemes are generally free from income tax and capital gains tax.

If a transfer is made from a UK registered pension scheme to a Qrops then, until recently, it has been free of tax (provided it does not exceed the individual’s lifetime allowance). More on this calculation later.

HM Revenue & Customs completed a review of the system in 2012 and found that Qrops were:

  • being marketed primarily as a way to avoid UK tax;
  • being used to facilitate early access to UK tax relieved pension funds;
  • being used by some individuals, based overseas or in the UK, in countries bearing no relation to where they live.

This clearly contrasts with the original reasons for allowing transfers of UK pension schemes that have benefited from UK tax relief, to be made free of UK tax to a Qrops.

HMRC needed to be more confident that Qrops were being used as originally intended rather than for tax avoidance; so a number of updates to the regime have been made since then.

What is a Qrops? 

A qualifying recognised overseas pension scheme is a scheme that must not be a UK registered pension scheme and must meet the four following definitions at all times:

  1. The scheme must be a pension scheme;
  2. The pension scheme must be an overseas pension scheme;
  3. The overseas pension scheme must be a recognised overseas pension scheme; and
  4. The recognised overseas pension scheme must become a Qrops as defined by the regulations. That is, the scheme will operate the overseas transfer charge and undertake to comply with the information requirements as prescribed by HMRC.

Recognised overseas pension schemes (Rops)

To be a Rops, the scheme must meet a number of conditions, notably:

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