Pensions millions moved offshore by QROPS transfers

Figures released by HMRC show that more and more people are opting to move funds into offshore facilities as they aim to reduce their taxes.

QROPS transfers pensions buliding

The numbers disclosed show that over 7,300 people have moved money acquired through pensions into offshore facilities, totalling around £432m as of 2006. These funds were all moved legally via QROPS (Qualified Recognised Overseas Pension Scheme). People utilise QROPS to move their pension funds into countries that have more favourable tax rates than the UK. QROPS users can also benefit from increased investment opportunities, freedom from annuities and greater options regarding estate and death duties. On a traditional UK pension you must purchase an annuity when you hit 75, or transfer the pension into an ASP (Alternatively Secured Pension), which itself imposes restrictions on the individuals income levels. The problem is for beneficiaries, ASP lump sum payments on death are potentially taxed at the punitive rate of 82 percent.

This 82 percent rate, which came into effect in 2007, is what experts believe led to the QROPS rush: “The 82% tax was introduced in April 2007. After that, we saw the amount transferred to QROPS increase by three-and-a-half times” Andy Bell, chief executive of AJ Bell, told The Times. He added that the government is currently losing a staggering amount of almost £1 million per day, and that changes must be made, changes that have been promised by the Conservative party should they gain power come this year’s general election. The Conservative’s have promised to remove the annuity necessity which they hope will curb the amount of people seeking QROPS.

Another method that pension holders are using to avoid the 82 percent tax is a procedure known as accelerated pension withdrawal. This involves draining their pot via payments totalling 25 percent of the value of the pension fund. However this method can often draw unwanted attention from HMRC. An employee at Bloomsbury Financial Planning, Jason Butler, said: “Anyone whose affairs are not standard can expect increased scrutiny from the Revenue if they adopt this approach. There are other ways of reducing your inheritance tax liability.”

There are also concerns that QROPS may be used in the wrong way, and that financial companies offering strong claims about tax evasion may be up to no good. There are a handful of destinations that prove popular for expats yet actually do not offer fantastic rates for QROPS. Both France and Spain have similar tax restrictions to the UK so taking a QROPS out there would not be productive, in some cases there are even negative factors, such as the lack of a free 25 percent lump sum allowance in France.

QROPS areas that offer better rates for UK pensioners include Dubai, Portugal and Cyprus. British non-residents able to transfer their pensions must do this through a professional adviser.

Please note, you can only utilise a QROPS if you are between the ages of 18 to 75; and are a non-resident British citizen, or intend to be within the next 12 months, or if you are not a UK citizen and are planning to leave the UK within one year.