QROPS or SIPP? So what is it all about and why is this of interest to residents of Spain with UK pensions? SIPPs (Self Invested Personal Pensions) and QROPS (Qualifying Recognised Overseas Pension Schemes) are two quite alien words you probably see banded about the internet a lot. Both are private pension plans into which you can transfer your existing UK scheme. Both offer specific benefits to expatriates in Spain. However, if you wish to transfer out of one or more UK pensions and consolidate into a scheme outside the UK it can only be to a QROPS as a SIPP is still UK based.
QROPS pensions are outside of the UK tax regime. But it is important that the overseas scheme is inside the EEA (European Economic Area) so as not to attract any transfer charges from HMRC. This is why Malta is generally the jurisdiction of choice. It is a well established QROPS location with many international trustee/pension firms set up there and allows full flexible access - equivalent to the same pension freedoms brought about in the UK in 2015. Finally there is a dual tax treaty in place between Spain and Malta which ensures no Maltese tax is paid on pension draw down.
The usual alternative for expatriates is a UK regulated structure - the International SIPP. The word "international" is a little misleading here as these pensions are in the UK but set up in a specific way to be advantageous to people living overseas. This means you can keep your pension assets in the UK but take advice from a regulated financial adviser who has expert knowledge of local laws in the country you live. Spain for example. The downside is the potential exposure to UK tax laws - especially on the death of the member.
Both pension structures allow flexible access (you can withdraw what you want when you want as well as stop and start your payments at anytime) and both are suitable receiving schemes for UK defined contribution, defined benefit and personal private pensions.
Below we have listed some differences and who each type of pension could be suitable for:
1) Spanish residents who have intentions of returning to the UK at some point.
2) People who prefer their pension to be UK based with FCA approved assets BUT wish to take advantage of local expert advice from a qualified, regulated international adviser in Spain and have an investment portfolio more appropriate for Spanish residency.
3) The more cost conscious as SIPPs tend to be a cheaper option than a QROPS.
4) People without life time allowance issues.
5) Expatriates with no UK domicile issues. Although neither SIPP nor QROPS are subject to UK inheritance tax (IHT), a UK based asset (SIPP) could prevent a person from losing their UK domicile which in turn could lead to a UK IHT liability levied on their world wide estate - even if they live in Spain.
6) People who wish to be closer to the investment choice and have a tailor made pension portfolio built around their needs with the potential to hold a wide range of assets including commercial property.
7) People wishing to consolidate two or more pensions into one, easy to understand, safe plan.
1) Residents of Spain wishing to transfer their pension outside of the UK and its tax regime but still be allowed flexible access after age 55.
2) Pension holders with UK life time allowance issues (A QROPS is not liable to the lifetime allowance ceiling).
3) Expatriates who wish to eliminate the risk of paying UK tax at source.
4) People wishing to pass on 100% of their pension to loved ones without tax - (with a UK pension where the member dies after age 75 there is a potential 45% tax liability placed on beneficiaries if they inherit and take the remaining pot as a lump sum - this does not apply to a QROPS).
5) Spanish residents who would like their pension to be in EUROS therefore eliminating currency exchange risk.
6) Those going through a divorce who want to protect their pension assets. 7) People wishing to consolidate two or more pensions into one, easy to understand, safe plan.
As you can see there are many circumstances that could effect choices in this area. Indeed a recommendation not to transfer can sometimes be the outcome after careful consideration, advice and our expert professional opinion. As ever it is important that you deal with a regulated firm with local tax and pension law knowledge such as ourselves. It is unlikely that any UK advisery firm will have either the appropriate regulatory permission, professional indemnity insurance or knowledge of the Spanish system to advise residents here. Not only do we have all the aforementioned but we live and work in Spain.
Patrick Macdonald ASCI
International Financial Adviser
M +34 633 750 044
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