Page 26 - Spanish Insight - October 2019

Is time running out for

tax-free pension transfers?

estate planning. What you need to consider
By Kelman Chambers, Partner, Blevins Franks
Without a guarantee that tax-free transfers
Taxation of QROPS transfers will continue, it is sensible for anyone
If you have chosen to retire in Spain, take Currently, most expatriates in the EU can considering transferring to act sooner rather
steps now to review your pension options transfer to a QROPS completely tax-free, but than later. Timing is especially important
before Brexit potentially changes the rules. there are two key situations in which tax is here as the administrative process for
With still no certainty on the timing and payable. pension transfers can take several months to
form of Brexit – be it hard, soft, no-deal complete.
or even no Brexit at all – it is difficult for First, if your combined UK pension benefits
expatriates to plan accordingly. We are often exceed the UK’s lifetime allowance – However, it cannot be overemphasised that
asked, for instance, what will happen to UK currently £1.055 million – you would face a transferring is not appropriate for everyone.
pension rules for expatriates after Brexit, but 25% tax penalty on anything transferred over Also, all QROPS are not the same – there
the reality is that no-one, not even the UK the limit, even if you are non-UK resident. are differences between providers and
government, knows for sure. Once in a QROPS, your funds would never jurisdictions that can affect the benefits.
be subject to LTA charges – or indeed any Alternative investment structures could offer
However, when it comes to rules for UK taxes – again. expatriates in Spain comparable benefits
expatriate pension transfers, it is likely that to QROPS, so take personalised, regulated
things may change. So if you are already The second taxable scenario is if you transfer advice to establish the most suitable approach
retired or planning to retire in Spain, take to a QROPS based outside the EU/EEA for you.
steps now to review your pension options (European Economic Area). In this case
under current rules. (unless you live in the same jurisdiction as Pensions are likely to play an important part
the QROPS), the UK would apply a 25% in your long-term financial security, so it is
The option to transfer overseas ‘overseas tax charge’ on the whole amount crucial that you only use a fully authorised
Many expatriates have chosen to transfer transferred. and regulated provider. An alarming number
their UK pensions to a Qualifying of people have lost retirement savings
Recognised Overseas Pension Scheme Expatriates in Spain can escape this tax by through pension scams or by reinvesting in
(QROPS). Since QROPS’ introduction in transferring to a QROPS based here or in failed, unregulated investments that offer
2006, over £11.4 billion was sent through another EEA area, such as Malta. However, no protection. Your adviser should take into
128,100 transfers up to April 2019 – £640 this may change with Brexit. account your unique circumstances, income
million in the past year alone. requirements, goals and tolerance for risk –
A closing tax-free window? as well as the cross-border tax implications
Transferring to a QROPS can consolidate As Brexit eliminates Britain’s current EU – to establish the right solution for you and
several UK pensions under one tax-efficient commitments – including freedom of your family.
roof suited to your country of residence and movement for capital – the Treasury gains
unlock other benefits. Funds are sheltered more scope to recoup revenue from UK Even if transferring is not right for you, with
from UK taxation on income and gains, and nationals abroad. Many speculate this will so much uncertainty ahead, now is the time
immune to future changes to pension rules. prompt the UK government to impose to review your pension arrangements so you
widespread penalties on pension transfers, can secure the retirement of your choice in
Usually, a QROPS provides greater even within the EU. Spain, whatever happens with Brexit.
investment diversification compared to UK
pension schemes and more freedom to vary The UK government has offered reassurance Tax rates, scope and reliefs may change. Any
income. Many also offer multi-currency that expatriates will keep the right to make statements concerning taxation are based upon
flexibility, letting you hold and draw your overseas transfers, whatever happens with our understanding of current taxation laws
funds in your currency of choice. Meanwhile, Brexit – but has stopped short of making any and practices which are subject to change. Tax
as UK pension payments are usually made tax promises. Last year, economic secretary to information has been summarised; individuals
in sterling, the income remains sensitive to the Treasury, John Glen, confirmed that tax- should seek personalised advice.
volatile exchange rates during these uncertain free exemptions would be “dependent upon
times. And, while most UK pensions are the terms of future exit agreement between Keep up to date on the financial issues that
payable only to your spouse on death, a the UK Government and the EU”. may affect you on the Blevins Franks news
QROPS allows you to include other heirs in page at www.blevinsfranks.com

26 Spanish Insight October 2019