QROPS and Inheritance Tax Planning

Deciding to transfer your pension into QROPS will affect how you plan your inheritance tax or IHT. Here's how.

 

In the event that a QROPS member remains resident in the UK, there are various IHT implications for an overseas pension transfer. First of all, the pension transfer will not of itself be a reason to charge the pension holder for IHT purposes. Because a QROPS is not a pension scheme registered in the UK, the funds in it will be subject to various other rules. If the funds have a UK origin they are deemed "relevant property" for purposes of IHT. This generally means that IHT charges will be charged on the current value of the funds every ten years, as well as on any payments of capital out of the scheme. If the UK resident pension holder dies while entitled to a pension from the QROPS, an IHT charge will be charged on the offshore pension funds held in the scheme to produce that income.

In order to qualify as a Qualified Recognized Overseas Pension Scheme, your QROPS must be tax recognised in the overseas jurisdiction or it must provide that 70% of the transferred assets are to be used to provide a lifetime's income. What this means is that pension transfers to a QROPS will not be charged inheritance tax and the QROPS itself will not be subject to IHT laws. The position above only applies to pension holders residing in the UK. On the other hand, if you are a non UK resident and are also deemed a non UK resident for inheritance tax purposes, you are only subject to UK inheritance tax charges on your UK estate. As such, your assets held in the QROPS are excluded and hence exempt from UK inheritance tax.

 

When residing in another jurisdiction, it is important to take extra care when it comes to QROPS and inheritance tax planning.

This is because UK rules and interpretations regarding inheritance tax can greatly differ with those of other European countries. For instance, in the UK, inheritance tax is levied against the estate of the deceased while other countries will tax the recipient or the beneficiaries. What's more, in certain jurisdictions where they are held, QROPS may also be subject to death taxes.