Next Generation Technical Support


QROPS - The Benefits and Restrictions

QROPS - The Benefits and Restrictions

Qualifying Recognised Overseas Pension Schemes (QROPS)
– The Benefits and Restrictions

What are QROPS?

QROPS came into existence from 6th April 2006 as a result of major UK pension legislation changes. They have been updated by a number of changes to legislation since that time.

These changes enable a member of a UK pension scheme to transfer to an overseas pension (QROPS) which is recognised by HMRC. Previously a transfer could only take place if the UK had a reciprocal arrangement with the country in which the member was emigrating to. This could only be done with the prior approval of HMRC.

QROPS have brought pensions into line with other UK investment vehicles such as Offshore Bonds and OEICS, whereby the UK tax liability falls away after a period of time living overseas.

QROPS are recognised by HMRC, however this does not mean that they are approved. To achieve a QROPS certificate the scheme has to meet certain criteria, including some key restrictions which are listed below. It is important that any scheme selected is clearly acting within the rules and restrictions that apply to QROPS. HMRC can withdraw the QROPS certificate if this is not the case.

The QROPS legislation has been driven by EU portability rules, so that pensions can now be transferred across borders very much like people, goods and services.

Who is suitable for QROPS?

QROPS may be suitable for UK clients who have/or are about to emigrate from the UK, and have a UK pension. QROPS may be appropriate for UK resident clients with no intentions of emigrating in certain circumstances.

QROPS are also suitable for foreign nationals and UK non domicile clients who have worked in the UK, and who are repatriating back to their national country overseas.

Most UK pensions, including those in pension fund withdrawal, can transfer to a QROPS; including members with protected rights funds.

Where assets are illiquid or funds have exit penalties, an in specie transfer can normally be made.

Clients that have UK pension funds close to breaching the Lifetime Allowance limit can transfer to QROPS to trigger a 'Benefit Crystallisation Event' BCE. Under current rules, once the pension funds have been transferred to QROPS they are able to grow without further assessment in regards to lifetime allowance limits.

State pensions, annuities, and pensions in payment from final salary schemes (where a client is not being offered a transfer value) cannot be transferred.  Transfers from funded defined benefit schemes are not permitted, as from April 2015, and transfers from other defined benefits schemes is only permitted when the advice has been given by a UK FCA regulated adviser.

What are the benefits of QROPS?

The same death benefits apply to QROPS members who are UK   resident, providing any lump sum benefit is payable within 2 years of death.

Once a member of a QROPS has been non-UK resident for more than 10 years, there is no tax on death in the UK at any age, where the beneficiary is non-UK resident.

As from April 2015 the 55% tax charge on death has been removed from UK schemes on death prior to age 75 but there is still a tax charge on death after age 75.

The same death benefits apply to QROPS members who are UK resident, providing any lump sum benefit is payable within 2 years of death.

Income from a UK pension scheme normally has a 20% tax deducted at source even if a member is non resident. Income payments can be paid gross or with a low rate of withholding tax from some QROPS. It may not always be possible to have income paid gross from a UK pension, and when it is possible it can be administratively onerous. Where a lower tax rate applies in the new country of residence, or in the absence of a suitable double taxation agreement with that country; remaining in a UK pension fund may not be suitable.

Withdrawals from a QROPS may be taxed at a lower rate than from a UK pension. Withdrawals can be declared in a variety of ways, which is dependent upon the jurisdiction of the QROPS. For example withdrawals declared as annuity payments may be taxed at lower rates than income withdrawals in many EU countries.

There is no requirement to buy an annuity from a QROPS at any time.

After 10 tax years of being non-UK resident, income and lump sums distributions may be higher from a QROPS than a UK pension. The lump sum distribution will depend on what basis the QROPS has obtained its certificate from HMRC.

There are no income restrictions on protected rights funds in a QROPS.

A QROPS can enable a client to diversify currency away from GBP.

Multiple pensions can be consolidated into one plan.

QROPS can assist a member with achieving non domicile status for other assets, if pension benefits are held outside of the UK.

What are the restrictions of QROPS?

All distributions from a QROPS must be reported to HMRC for the first 10 tax years in which a member is non UK resident. This includes all income, lump sum and transfer payments. This is to ensure that the scheme is subject to UK rules for this period of time. The policy aim of HMRC is to prevent members from becoming non-resident for a short period of time with the sole intention of benefitting from more flexible local pension rules.

A member must take benefits subject to UK pension age restrictions. This is currently age 55.

In some circumstances, at least 70% of the fund must be used to provide an income for life.

Malta have introduced legislation to allow Flexi-Access Drawdown to members of Malta QROPS, as of the 1st January 2016.

Other QROPS jurisdictions are yet to adopt Flexi-Access Drawdown and Gibraltar has confirmed that it will maintain the '70% lifetime income rules'.

What are the risks?

There are clear guidelines to QROPS restrictions and it is important that trustee selection takes these into account. It is highly recommended that due diligence should be carried out on any trustee that a member is considering transferring to. The same process should apply to the jurisdiction that applies to the QROPS.

Key concerns from HMRC are around whether the scheme is available and marketed to local residents, that the QROPS jurisdiction should have a robust private pensions system, and that a scheme should adhere to the restrictions placed upon it by its QROPS certificate. Schemes must act in the domestic market, and be occupied by local residents. Where a scheme has been set up solely for the purpose of accepting UK pensions then risks are greater.

It is important that a client understands that guarantees could be lost by transferring either protected rights funds, or final salary schemes that have salary related benefits.

A transfer to a QROPS will have local tax implications in the country in which the member will reside. It is important that they have a full understanding of any implications.

Due Diligence

It is vital that due to these risks, a thorough due diligence process is carried out on each jurisdiction and individual QROPS provider.

The flexibility to which regular and lump sum payments can be paid depend on a number of factors, of which the most important are: a) On what basis HMRC have recognised the jurisdiction and b) The local rules of the jurisdiction in terms of having an established private pension regime.

The robustness of a scheme will depend upon factors such as: a) Behaviour in line with rules dictated by the QROPS certificate, b) Scheme being freely available to local members c) Scheme is not set up just to accept UK pension transfers d) Scheme acting within UK rules for the first 10 complete tax years of member being non-resident.

The jurisdiction where a client is residing will impact on the choice of QROPS. Factors that need to be taken into account include any double tax treaties, and exchange of information with the UK.

HMRC have confirmed that QROPS will continue as a planning option for clients moving overseas, as this is required to make the UK internationally compliant.


QROPS may provide a tax advantageous alternative to a UK pension scheme in appropriate circumstances for an individual with a UK pension fund who has or is intending to permanently emigrate, and for UK residents with no intentions of emigrating in certain circumstances. It is important that advice takes into account the relative merits of all options available to a member, and the personal circumstances of the member and their family.

QROPS trustee selection should take into account adherence to the HMRC regulation, as well as the jurisdiction as a whole, consideration should also be given to the benefits, rules and local tax implications that may apply.

Update – Overseas Transfer Charge

In the 2017 UK Budget, a charge on transfers to Qualifying Recognised Overseas Pension Schemes (QROPS) was announced by the chancellor, Phillip Hammond.

We have summarised the key points below:

Transfers to QROPS requested on or after the 9th March 2017 will now be subject to a 25% "overseas transfer charge", unless;

The QROPS is in the EEA and the Member is also resident in a EEA country.The QROPS and Member are in the same country or territory. For example Australia.There are three other exemptions listed but these relate mainly to transfers to overseas occupational type arrangements.

The transfer charge can be reviewed if the member moves within 5 complete tax years of the date of transfer – the "relevant period". (I.e. if an EEA resident moves away from the EEA within 5 years of the transfer from the UK scheme, the transfer charge can still be applied. If a non EEA resident moves into the EEA within 5 years of the transfer from the UK scheme, the transfer charge can be reclaimed from HMRC).In addition, HMRC will retain taxing rights for 5 years from the date of transfer as well as for 10 years of non-UK residency (as from 6/4/17).There are increased reporting obligations on UK scheme managers transferring to QROPS and on QROPS scheme managers, who will have to confirm by the 13 April 2017 that they will comply with the new rules and wish to remain a QROPS.

The changes above will impact clients residing outside of the EEA and individuals that are planning to relocate to a non-EEA country within 5 years will also be impacted.

QROPS will remain attractive and appropriate to clients in the correct circumstances but it is important to ensure that proper financial advice is taken, with input from an independent specialist where necessary.

Become a member for as little as £25/month