Retiring abroad
Taking your pension with you
If you are planning on retiring abroad it is now possible to take funds with you and not have to buy an annuity as a result of new rules on overseas pensions.
It is estimated that as many as 400,000 Britons who move abroad each year will now be able to take their pensions too and withdraw their funds as cash within five years.
New rules have also been introduced in the Isle of Man for its pensions including: no obligation to buy an annuity, higher tax-free lump-sums, the freedom to invest in residential property and inheritance tax at less than one-tenth of that in here.
Jurisdictions such as Singapore, the Republic of Ireland and Hong Kong are even more liberal in what they will let you do with your pension, allowing you to get your hands on all the cash once you have been out of the UK for five years.
To capitalise form the tax advantages of moving your pension abroad you have to move your fund to a Qualifying Registered Overseas Pension Scheme (QROPS). Once in a QROPS scheme, your cash is no longer subject to HMRC rules, although the pension provider must report your dealings with it to the Revenue for the next five years.
After that there is no reporting requirement, and if you are still not living in the UK your entire fund can be taken as cash.
Anyone moving abroad needs to make sure it makes sense to switch into a QROPS scheme for the country that is to be their new home. Professional advice is essential because the evaluation is a triangular process involving tax rules in the UK, the country where the QROPS pension scheme is based and the country where you plan to live.
While the QROPS scheme will free you from UK tax, you may be taxed in the country in which it is based and in your new country of residency.
The new Isle of Man rules make their QROPS pensions significantly more flexible than their UK counterparts. Unlike the UK, there is no requirement to buy an annuity at age 75, tax-free cash is set at 30 per cent rather than 25 per cent and funds can invest in residential property.
Isle of Man pensions charge income tax at 18 per cent, which will be taken account of in your country of residence provided it has a double taxation treaty with the Isle of Man as most EU states do. But you also need to consider what the local tax rates are in the country to which you are moving.
France, for example, is not a great place to be taxed on your pension, because tax-free cash is not an option so you will be taxed on your lump sum as income. Taking tax-free cash before you go makes sense if you are retiring to live there.
Local income taxes in Spain and Italy could leave some people worse off, depending on their situation, although the IHT savings and access to cash after five years may make QROPS plans worthwhile in the long run.
Portugal has a generally lower rate of income tax while anyone retiring to Cyprus could save thousands as it charges only 5 per cent income tax on pensions.
Research from Scottish Widows shows that two-thirds of higher-rate taxpayers are planning to move abroad when they retire and this figure is set to grow.
