Hong Kong QROPS IHT Planning Immediately transfers a UK pension outside of your estate, removing any UK IHT liability on the transferred amount 

And TAX FREE withdrawals can be made; together with an income which is paid GROSS

A QROPS is a special “Trust” (fully HMRC approved) which imediatley removes your UK Pension (money) outside of your estate, and as a consequece on your premature death there is no liability for UK IHT.

In addition to using a QROPS to mitigate and potential IHT liabilities; a QROPS as a “Off Shore” pension also has substancial benefits for a “Expat” over a UK “On Shore” pension.


QROPS came about as a result of changes to the UK pension’s legislation that came into effect on 6th April 2006 – “A Day”. These schemes enable a member of a UK pension scheme to transfer to an overseas scheme recognised by Her Majesty’s Revenue and Customs (HMRC). There are a number of jurisdictions approved by the UK tax authorities and they are offered by a number of providers.

They are only available to people who are planning to cease being a UK ordinary resident, or who are not currently an ordinary resident in the UK, and who are no longer making, or will cease to make future contributions to their pension scheme. Furthermore the existing pension scheme must not be in drawdown; for example you have not currently taken any benefits from your scheme (for example, any tax free cash and / or an income).

The main benefits of a QROPS are:

  • Benefits are available from age 55.
  • There is no requirement to purchase an annuity on retirement or at any other time.
  • Greater flexibility exits in how you can take an income from the underlying fund.
  • A minimum of 30% of the underlying fund value is available as a TAX FREE lump sum.
  • Under current Isle of Man (IOM) legislation only, 70% of the underlying transfer value is required to remain in the QROPS when you choose to take the benefits from age 55 (at crystallisation) the remainder is available as a TAX FREE lump sum.
  • The underlying investments grow in a tax-free environment (other than dividend withholding taxes).
  • The full fund is payable free of any UK Inheritance Tax (IHT); in the event of your premature death whenever and where ever that occurs (IHT current tax rate of 40%).
  • Tax advantages and guarantees provided by offshore investments; whilst remaining under the comfort of the UK regulatory framework.
  • There are no UK income tax liabilities on received pension payments. Payments are paid GROSS of any UK income tax.
  • Greater flexibility over the nature and timing of your retirement benefits.
  • The pension fund can be denominated in a wide range of currencies to suit you (this may reduce currency risk).
  • QROPS are exempt from the UK Lifetime Allowance (the maximum value of the underlying fund; before tax on any excess becomes liable; currently at a tax rate of 55%).
  • Wider limits on pension income levels, which can be varied to suit your individual circumstances.
  • A QROPS removes “Your Money” from UK HMRC Pension Tax currently calculated at a tax rate of 55%.
  • A particularly flexible contract where an extensive range of investments can be made.
  • Saliently a QROPS puts you back in control of YOUR MONEY.
  • Greater control over the investment of your underlying investment fund, with a wide range of choices available to you. This is important because, the greater the underlying fund value – all other things being equal – the larger your income will be.

Why a QROPS(aQualifying Recognised Overseas Pension Scheme)

Because A QROPS can “Seriously Increase Your Wealth

Most UK pension schemes are only permitted to pay 25% of the underlying pension fund in the form of a (TAX FREE) lump sum. However, QROPS are subject to different Her Majesty’s Revenue and Customs (HMRC) rules that relate specifically to QROPS, which can permit a much larger lump sum withdrawal.

As a consequence under current Isle of Man (IOM) QROPS legislation only 70% of the underlying transfer value is required to remain in the QROPS, when you choose to take the benefits from age 55 (at crystallisation) the remainder is available as a TAX FREE lump sum.

For example; James who is 45, transfers a total of £200,000 (all non-protected rights) into a QROPS scheme based in the IOM, from his UK pension arrangements.

When James reaches say age 65, and is thinking of retiring, his QROPS fund has grown to say £600,000. Being a non-UK resident for over 5 years, James is only required to take a pension with £140,000 of his accumulated QROPS fund (this represents 70% of the “Original” transfer amount of the original £200,000) the excess over this £140,000 can be paid to him as a “TAX FREE” lump sum amounting to some £460,000. So his maximum lump sum in this example is some 75% of his total pension fund – all, currently, in accordance with HMRC rules.

In contrast; if James had kept his pension in the UK his maximum lump sum would have only been 25% of his fund, some £150,000.

So, currently, an IOM based QROPS allows James – in accordance with HMRC rules – to take a lump sum which is say in this example some 3 times larger, and all tax free. As opposed to a person within a UK pension scheme, the maximum tax free lump sum would be restricted to 25% of the underlying fund value.

In Summary, under current IOM legislation only 70% of the underlying transfer value is required to remain in the QROPS when you choose to take the benefits from age 55 (at crystallisation) the remainder is available as a TAX FREE lump sum to spend as you wish.

In addition the remaining pension income is paid GROSS and not NET of UK income tax at your highest marginal rate – clearly again this has the potential of increasing your wealth if you live in country where no tax is payable on unearned income; for example in Hong Kong, you would receive your pension income from the UK GROSS TAX FREE and it would remain TAX FREE here in Hong Kong.



UK Inheritance Tax (IHT) Planning For UK British Expats Hong Kong


Would you like to ask us a question or receive further information. Then please email us on our contact form, we will be pleased to answer any questions you may have.

This web page was written in 2015. For the latest information please download the latest FREE Expat British UK Pension Transfers QROPS GUIDE; QROPS information explained.

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