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Is time running out for today’s pension opportunities?

By Rob Kay, Senior Partner, Blevins Franks

With the Brexit clock ticking, we have less than two-years’ certainty about the rights of expatriates in France. Take steps to secure your financial future by using this time to review the options for your retirement savings.

The option to transfer

Based on current law, Brexit should not change how you can access or transfer UK pension funds. Today, many expatriates transfer to a Qualifying Recognised Overseas Pension Scheme (QROPS) to benefit from tax advantages and flexibility over UK pensions.

Once in a QROPS, funds are sheltered from UK taxation on income and gains and no longer count towards your lifetime pension allowance (LTA), enabling unlimited growth without attracting 55% or 25% LTA tax penalties.

Usually, QROPS also provide greater investment diversification compared to UK pension schemes and more freedom to vary income. Whereas most UK pensions are payable only to your spouse on death, QROPS offer flexibility to include other heirs in estate planning.

Even if nothing materially changes post-Brexit in how we draw UK pensions in France, the income remains vulnerable to exchange rates. QROPS offer multi-currency flexibility, letting you hold and draw your savings in different currencies. This potentially insulates pension income from volatility in the pound and euro.

The new QROPS tax

QU6oZd8gIG-1A new ‘overseas transfer charge’ revealed in the UK Spring Budget may be an indication of changes post-Brexit. Since 9th March, a 25% tax applies to UK pension funds transferred to a QROPS outside the European Economic Area (EEA), unless you live in the same jurisdiction. All other QROPS transfers (within the £1 million lifetime pension allowance) remain free of UK taxation.

Expatriates in France moving to a QROPS based within the EEA, like Malta, escape this tax. Take note, however, that liability lingers for a full five tax years after the transfer date. So if your circumstances change within that time to make you eligible for taxation – like moving outside the EEA – the UK taxman can still claim a quarter of transferred funds. This will not affect you if you transferred your pension before the new rules came into force on 9th March 2017.

Limited tax-free window?

Brexit will eliminate Britain’s current EU commitments, offering more opportunities to recoup revenue from UK nationals abroad. Many speculate this will prompt the UK government to impose widespread penalties on pension transfers. They could also change the rules to make it harder to take advantage of today’s high transfer values for ‘defined benefit’ (final salary) pensions.

However, transferring is not suitable for everyone and differences between QROPS providers and jurisdictions could affect tax benefits. Alternative investment structures could offer expatriates comparable benefits to QROPS, so take advice to establish the most suitable approach for you. With pensions it is also important to use regulated providers for protection from scams and unsuitable investments.

Until April 2019 – while Britain is still an EU member – little can change in relation to the way you receive or transfer your UK pensions. If you decide that transferring is right for you, consider acting now, before Brexit triggers change, to secure the retirement of your choice in France.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.

We upload new financial articles for expatriates each week. Visit our website here

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