UK & International Pensions

SIPP

What is it?

A Self Invested Personal Pension (SIPP) is a UK-based pension scheme that can invest in the full range of Her Majesty’s Revenue and Customs (HMRC) approved investments. This allows a greater range of investments choices than would be available under a personal pension scheme.

How is a SIPP funded?

It can be funded by a transfer from another pension scheme or directly by the scheme member.

Are there restrictions on the scheme member’s residence?

A SIPP is available to both UK and non-UK residents. Some SIPP providers may have restrictions for making regular contributions for non-UK residents.

What if the scheme member holds a SIPP and moves to the UK?

Nothing changes.

When can benefits be taken?

The scheme member can start taking benefits from the age of 55 (this is due to change to age 57 from 2028).

Is it subject to UK IHT?

No. Funds held within the SIPP are treated as being outside of the estate for IHT.

What is the maximum Pension Commencement Lump Sum (PCLS) that can be taken?

The maximum PCLS (or tax-free cash) that can be taken is 25% of the value of the scheme. Depending upon the scheme member’s country of residence, this could be tax free.

Is it subject to UK income tax if the scheme member is UK resident?

Following the introduction of Pension Freedoms in 2015, there are various options as to how benefits can be taxed. Ordinarily a regular income from the scheme will be arising income for UK income tax, however, if a PCLS is not taken then 25% of each regular payment could be taken tax free

What is the tax treatment of benefits if the member is not UK resident?

This will depend on the scheme member’s country of residence, any Double Taxation Agreement (DTA) in place between the UK and that country, and which country is granted taxing rights in respect of pension income/benefits under the DTA.

What else do I need to know about SIPPs?

• Can be transferred to an overseas scheme at a later date where it may be more appropriate for the scheme member.
• Taxable events must be reported to HMRC irrespective of where the scheme member is resident.

QROPS

What is it?

It stands for Qualifying Recognised Overseas Pension Scheme (QROPS). It is a registered scheme with Her Majesty’s Revenue & Customs (HMRC) that allows UK pension benefits to be transferred overseas. To achieve QROPS status the Overseas Scheme has to meet certain criteria and give undertakings to HMRC as specified by the relevant regulations. A QROPS differs slightly to the SIPP in that it must have a beneficial owner and trustees.

How is a QROPS funded?

Usually they are funded by a tax relieved transfer from a registered UK pension scheme. Depending on the jurisdiction and the rules of the scheme, it may be possible for the member to make further contributions.

Are there any restrictions on the scheme member’s residence?

UK residents, expats and non-UK nationals who have a UK pension can transfer their pension benefits to a QROPS.

What if the scheme member holds a QROPS and moves to the UK?

Like QROPS, QNUPS are generally used by non-UK residents looking for an international pension scheme. However, they are also used by UK residents who wish to hold more esoteric assets in their pension fund or who have already reached the limit of their lifetime allowance. No changes need to be made to the scheme where the member is a UK resident.]

UK resident members, and those returning to the UK should avoid holding assets that are considered highly personalised if the underlying investment is a portfolio bond.

When can benefits be taken?

If the scheme member is not UK resident then, depending on the pension legislation/rules in the jurisdiction where the scheme is administered, benefits could be taken from age 50. However, if the scheme member is UK resident, 55 is the earliest age (This is set due to increase to age 57 from 2028).

Is it subject to UK IHT?

Generally not subject to IHT for both non-UK and UK resident. A death tax may be applied in the county where the member is resident at death. What is the Maximum Pension Commencement Lump Sum that can be taken? Depending on the jurisdiction where the scheme is administered, a lump sum of up to 30% can be taken. However, in most jurisdictions the maximum amount is 25% as they are required to follow UK pension rules if they have been funded by a UK tax relieved transfer from a UK registered pension scheme.

Is it subject to UK income tax if the scheme member is UK resident?

Depending on the scheme rules it may be able to follow the post April 2015 pension freedoms rules.

Does a Double Taxation Agreement need to be in place with the UK?

The QROPS jurisdiction must have an appropriate DTA with the UK or else satisfy certain conditions.

What else do I need to know about QROPS?

It is not possible to transfer a QROPS to a QNUPS, however, it can be transferred to a SIPP. 

On 9 March 2017, HMRC introduced an overseas transfer charge of 25%. The charge is a flat rate and applies to the original transfer value from the UK registered pension scheme to a QROPS, or from a QROPS to another QROPS. The following are exempt of the overseas transfer charge: 

1. the scheme and the member are resident in the same jurisdiction; 

2. the scheme and member are both in an EEA country; 

3. the transfer is being made to an employer sponsored scheme (there is no restriction on where the QROPS is located or the member resident); 

4. the transfer is made to a scheme set up by an international organisation and at the point of transfer the member was an employee; or 

5. the transfer is made to an overseas public service pension scheme and at the point of transfer the member was an employee of the employer which participates in the scheme. 

If the member’s circumstances change within the first 5 years following the transfer so that the exemption would no longer apply, the overseas transfer charge would apply at that time. NB: The overseas transfer charge is in addition to the test against the available Life Time Allowance (LTA) where the excess is taxed at 25%. 

NB: The Isle of Man is not part of the EEA. Therefore a transfer to a QROPS registered in the Isle of Man would be subject to the overseas transfer charge unless the member is also a tax resident of the Isle of Man.