Example 1

An individual with a UK Personal Pension, aged 35, goes to live and work in Australia, ceasing to be UK tax resident on 15th October 2008. They commence the process of transferring their UK pension scheme to an Australian QROPS, which finally concludes in May 2009. On 6th April 2014 the scheme, effectively loses all obligations to HMRC and falls entirely under Australian pension legislation ? i.e. all proceeds can be taken as cash lump sums, entirely tax free, albeit not until age 60. (Australian schemes are locked in until age 60)

In this scenario the major advantages to the expat are faster access to tax free sums but it should be noted that no cash is payable until age 60 ? in the UK 25% would have been accessible 5 years earlier at the age of 55. These variations are why each case must be accessed individually. For many this Australian option is hugely advantageous ? for others it could be interpreted as disadvantageous.

Example 2

An individual with a UK Personal Pension, any age, goes to live and work in the USA, ceasing to be UK tax resident on 15th October 2008. The Internal Revenue Service in the USA will not permit a transfer to a US registered QROPS even though they exist and thus benefits will have to be taken in line with UK legislation and will therefore be taxable and involve receiving an income stream over many years before the total funds are utilised.

This means that a US resident expat doesn?t have much hope in terms of using ?local? QROPS but because QROPS can be taken to any country, even those resident in the US can benefit by using a QROPS in a 3rd country. See the discussion below.

Example 3

An individual with a UK Personal Pension, aged 35, goes to live and work in Spain, ceasing to be UK tax resident on 15th October 2008. They commence the process of transferring their UK pension scheme to a Spanish QROPS, which finally concludes in May 2009. On 6th April 2014 the scheme, effectively loses all obligations to HMRC and falls entirely under Spanish pension legislation. The QROPS scheme they are in allows a 25% cash sum to be taken at 55 with the remainder payable as monthly income until death.

This example shows that moving jurisdiction alone does not give you a better deal. In this case there may be better Spanish QROPS schemes available but the one purchased appears to offer little if any advantage over the existing UK one. The message is that you MUST look closely at the details of your QROPS scheme wherever it is based.

General principles

To really benefit from a QROPS you may need to ?think outside of the box? and be prepared to look to countries other than that of your new home ? in other words start shopping around under expert guidance.

Let?s illustrate this with another example.

Example 4

An individual with a UK Personal Pension aged 50 and living in the UK in 2010, moves to Spain. He commences the process of transferring his UK pension scheme to a New Zealand registered QROPS. By 2015 the NZ QROPS ceases to have any reporting requirements to HMRC in the UK. The individual at the age of 55 has not been a UK tax resident for five years and the entire pension fund can be accessible in cash lump sums, in 2015 or 2016 entirely free of UK and NZ tax.

In all the cases above the pension holders would have benefited from moving to a selected New Zealand based scheme irrespective of where they lived ? apart from the UK.

Summary

Selecting an appropriate QROPS in the right country is imperative. Remember that not all QROPS in a given country offer the same benefits/restrictions but you are not restricted to shopping in any one country. Some QROPS in certain countries will only be open to tax residents of that country, but many are not.

So, if you?d like to avoid paying a lot of your pension fund savings to the taxman, and avoid having a faceless bureaucrat tell you what you can and cannot do with your funds, it?s time to contact a professional advisor and get looking around!

Hello

Example 3
An individual with a UK Personal Pension, aged 35, goes to live and work in Spain, ceasing to be UK tax resident on 15th October 2008. They commence the process of transferring their UK pension scheme to a Spanish QROPS, which finally concludes in May 2009. On 6th April 2014 the scheme, effectively loses all obligations to HMRC and falls entirely under Spanish pension legislation. The QROPS scheme they are in allows a 25% cash sum to be taken at 55 with the remainder payable as monthly income until death.

Example 4
An individual with a UK Personal Pension aged 50 and living in the UK in 2010, moves to Spain. He commences the process of transferring his UK pension scheme to a New Zealand registered QROPS. By 2015 the NZ QROPS ceases to have any reporting requirements to HMRC in the UK. The individual at the age of 55 has not been a UK tax resident for five years and the entire pension fund can be accessible in cash lump sums, in 2015 or 2016 entirely free of UK and NZ tax.
In all the cases above the pension holders would have benefited from moving to a selected New Zealand based scheme irrespective of where they lived ? apart from the UK.

So looking at your example 3 and 4 can you comment on the person’s liability for capital gains and income taxes (or any other tax for that matter) payable in Spain?

When being a tax resident in Spain, your worldwide income should be reported and is taxable in Spain.

...so then am I right in saying that if you have a QROPS or any other type of pension outside of Spain it’s taxable both for capital gains and income whereas those within Spain are not? Also payments made into the Spanish pension qualify for tax relief whereas those paid into foreign pension schemes are not?

foreign pension schemes are taxable , any investment opportunities are taxable across EU , foreign taxies will have to payed aswell where applyed

Hello All

First off- a disclaimer. I’m not an IFA. i don’t sell financial products of any kind, nor am I affiliated with anyone who does. I am actually someone looking to straighten out his financial affairs, and with the time and resources to do an investigation themselves. Also I have investigated my personal situation. An unmarried UK national, living and working in Spain, having left the UK more than 5 years ago.

I’ve done a fair bit of research and I’ve discovered the following information that many IFAs- especially those selling QROPS seem to omit to mention. What I’ve found surprised me at first as it somewhat changed what I understood to be the way things worked, but then on reflection seem logical and reasonable- which also made me believe it was probably true!

So what have I discovered?

First off- if you live in Spain, you have to pay Spanish taxes. It doesn’t matter whether you are English, Spanish or Martian. It doesn’t matter if you are a retired pensioner or still working. IF YOU LIVE HERE - YOU HAVE PAY SPANISH TAX. (The definition of living in Spain is well documented elsewhere so I wont repeat it here.)

Second: With few exceptions (including the so-called Beckham’s Law) if you have ANY income ANYWHERE IN THE WORLD, you have to pay Spanish Income Tax on it. When you are working you have to pay income tax on your income from that work (see below for income from investments). When you retire you have to pay tax on your pension, regardless of where it comes from, including the UK, New Zealand, Channel Islands or even Spain. Yep- even Spanish Pensioners pay income tax on their pension. And by the way hiding behind the Channel Islands/Offshore witholding tax does not mean you are not still also liable for Spanish tax. The Spanish Govt (as well as the Germans, the UK HMRC etc) are all over these tax havens- especially now when they need every tax cent they can get their hands on. It’s just a matter of time before Jersey becomes more famous for it’s cows again.

OK- so so far everything is the same. However:

3. The horror: QROPS are a way to transfer out you UK private Pension to avoid UK tax- but only UK tax. You are still liable for Spanish tax. Also where you have you QROPS is very important. Now here’s the killer: Non-Spanish QROPS are subject to ANNUAL Capital Gains Tax (if you sell a unit), and any dividends paid out are subject to ANNUAL Income Tax. This point is HUGE! Apart from the fact you are paying out money every year in tax, you are also losing by not having that money as part of the pot to grow for the next year (it doesn’t compound). Over 20 years that’s a big difference. What’s more Isle of Man, Jersey, New Zealand etc. QROPS premium payments CANNOT be offset against Spanish Income tax. So three strikes for QROPS.

4. Spanish Compliant Bonds (e.g. Skandia Spanish Collective Investment Bond, Prudential etc) do not have this annual penalty - I presume this is why they are “Spanish Compliant”. The capital gains and income is kept in the fund to grow without being subject to tax all the way until they are cashed in. Then payments out are subject to income tax (like everything) for you but when you die they are subject to Inheritance tax on your beneficiaries. They are treated as if they were a house in Spain. What’s more is there is no tax relief on premium payments and they are not QROPS so AFAIK you can’t transfer your UK pension into them. A big plus though is the ability to get at your money pretty much whenever you want (although with big penalties within 5 years) - I guess this is probably why they are not QROPS.

5. The surprise: Spanish Pensions also are not subject to yearly tax- in fact the premiums you pay in are partially deductible against income tax. When you cash them in you are taxed on the income as usual but when you die the remainder is passed on to your beneficiaries and taxed as Income (not inheritance). What’s more is that there are a number of Spanish Pension funds which are also QROPS (See the UK HMRC website for a list). So from a tax point of view, if you live and work in Spain, they are easily the most efficient. That said, the ones I’ve looked at so far do not allow you to get at the money until you retire- e.g. so you can’t raid the fund to buy a house in a few years time. It’s locked up either till you retire, die, get disabled or long term unemployed.

Conclusion

Non-Spanish QROPS = waste of money. I’m going down the local Bank, getting a Spanish QROPS valid Pension, transferring my UK pension there, and making payments into it as tax efficiently as possible. In the meantime, all my other investments are being rolled into a Spanish Compliant Bond (so I can get easy access if I need it).

Disclaimer 2

The above is merely a comparison of what I have understood as the differences between various pension vehicles available with the emphasis on tax treatments. Other factors of course come it to play which may still make it better to choose a different option. For example, as far as I know there is no Spanish version of QROPS- i.e. if you leave Spain, I don’t know if you can take your pension with you (you of course don’t lose it though). Maybe the offshore QROPS companies are better fund managers than the Spanish so your fund grows more quickly. I personally am wary of investing in Spanish companies, and many of the Spanish funds are locally focused. Maybe you need to have your documentation and dealings in English. And someone has to pay for all those IFAs and their beer! And of course- maybe I’ve got something wrong. In any case you should always talk to a honest, independent, legally qualified and knowledgeable financial advisor ;o). And let me know when you find one!

References:
I’ve got links for the source of my findings but it’s probably against forum rules to post links to Bank websites, other forums etc

Hope this helps! Any corrections gladly received!

I live in Spain and was advised by a local expat IFA to transfer my pensions to New Zealand to enable full encashment. But I decided to seek a second opinion using an online specialist. And I am glad I did. As they advised me that I would have to pay tax in Spain on the whole of the transfer value if I did the New Zealand rout. 

They did undertake my transfer for me using a QROPS Trust based in Guernsey. They advised that if I took any cash lump sum that it would be liable to tax in Spain. So I did not take any. However there is only liability to tax on income drawdown. Not while my money is invested. This is because they have structured a Bond that is not liable to Spanish tax in the QROPS. But as this Bond can hold just about any asset I am well sorted. So if you get proper advice it can be done. The IFA I used is UK CII and PFS registered. They are also G60 qualified.

If you do not know what G60 is Google ?QROPS G60?

The IFA I used is:  http://www.pension-transfers-qrops.com/index.html