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Pension Tax – Pension Cash Benefits – Why pay tax you do not have to?
Can you access your pension tax-free? When should you access your pension – before or after you move from one country to another? We publish simple information below to allow you to decide
Bang! April 2015 has led to the starting gun being fired on people accessing their pension funds to pay off debts, buy new assets or just invest elsewhere. Many of these people have tried accessing funds without realising the pension tax implications, and already some are coming to us asking us if the decision can be reversed!
Also, widespread use of certain QROPS territories such as Malta, hide the fact that some countries (For example Switzerland) offer a fantastic opportunity.
Understanding the rules means you don’t have to break them:
25% Overseas Transfer Charge (OTC) will be levied on transfers as they leave the UK unless one of the five following conditions are met
The member is tax resident in the same jurisdiction as the QROPS is established at the date of the transfer
Member is tax resident in the EEA or the QROPS is established in EEA
The QROPS is an occupational scheme and the member is an employee of the employer sponsoring the scheme
The QROPS is a Public Sector Scheme and the member is an employee of the employer sponsoring the scheme
The QROPS is set up by an International Organisation and the member is an employee of the employer sponsoring the scheme.
If you live in certain countries, especially in Europe, then you could benefit from tax efficient access in excess of anything available from either a SIPP in the UK or QROPS in Malta.
However, it is also key to understand that if you have multiple small pensions cumulatively less than £30,000 then you commute them all to cash in the UK, without advice, but you will be liable to income tax on 75% of that obtained (see next points).
The income tax will be that in the UK, or it will be according to the Double Tax Treaty (DTT) of the country that you live in.
If possible, a better solution is accessing a fund of £28,000 or less split over 2 UK tax years; allowing for UK personal allowance will almost certainly result in minimal tax or no-tax being paid (to be clear, take up to £14,000 per annum).
There is no advantage, due to the high costs, of anyone utilising a QROPS to access funds of £30,000 or less, other than in exceptional circumstances.
Often, advisers overseas utilising a QROPS for small funds is not for the clients benefit, but purely for commission and earnings reasons for the adviser.
If you have multiple small pensions less than £30,000 then you may be able to commute them all to cash, prior to 6 April 2015.
For larger funds, most people will have the option of commuting all their pension funds up to 100% (Only 25% of this will be UK tax-free and the remainder will be taxed according to the DTT of the country you live in. CLICK HERE for further info about DTT.
Again, prudent use of encashment in different tax years could result in very low or no-tax being paid utilising the new UFPLS regime in the UK.
Death taxes removed for everybody under 75 – no 45%, nor 55% tax, for Beneficiaries.
SIPP will give the option to choose various low cost structures, that can be utilised post death as well.
Receive small pensions with zero tax deducted from the UK either through the use of UK personal tax allowances, or through use of DTT’s or a combination of the two. Even larger pensions can have careful financial planning to ensure minimisation of tax. We do not recommend anyone even considers a QROPS until their funds are at least £150,000 other than jn exceptional circumstances, or unless they live in a country that has specific QROPS dispensation for its own residents (for example, New Zealand, Switzerland or Australia). CLICK HERE for further info about DTT.
AVOID HUGE COMMISSIONS: We will conduct business at minimal cost to you.
If you do not require advice, or if you have received advice and want to save money then we are able to conduct your business at minimal cost to yourself, and with no hidden commissions.
Typical points or questions for taking funds from pensions after April 2015:
I have UK pensions (excluding state pensions) worth less than £30k; or
I have UK pensions (excluding state pensions) less than £150,000 and am happy to plan for the minimisation of tax over a few years using the new UFPLS regime
I understand I may live anywhere (including the UK)
I am over the age of 55 and need advice
I have already purchased an annuity with my money?
I have taken my PCLS, or am drawing on income from my fund?
My company/occupational pension is already in drawdown?
I am still a UK resident and have no intention of moving overseas?
I am overseas, so can I still benefit?
I do not live in France, Australia, USA, Switzerland (list not comprehensive)
The last point is merely a guideline of some countries where there are other options to be considered that may be better, or there may be double tax implications which need to be taken into account.
Why pay tax that you do not have to? – and increase your flexibility for taking tax free cash
Depending on your status, along with future living plans, we can answer your queries and provide qualified and expert advice, without any further obligation from you. The key here is that one size does not fit all. However, anyone with a UK pension scheme who now lives overseas as an expatriate, or is planning to leave the UK, can now receive advice from UK experts that will avoid them breaking the law and have the UK HMRC pursuing them for tax penalties of 55% or more.
Should I consider a QROPS to utilise tax free cash?
Depending on the jurisdiction chosen for the Pension Scheme, there is the potential for greater tax free cash from a QROPS and this should be considered for people who live in certain countries like New Zealand or Switzerland (not a comprehensive list, just examples). People with large funds in excess of £600,000 can also consider QROPS as an alternative irrespective of which country they live in. Contact us for advice.