Which QROPS Jurisdiction?
Selecting the correct QROPS jurisdiction is crucial. Malta, Gibraltar and the Isle of Man are among the most popular QROPS locations and which you choose should be largely based on where income will be received. Below is a guide to each jurisdiction and should be used in conjunction with personal financial advice.
Malta has a well regulated and respected financial services sector. Pension trustees are regulated by the Malta Financial Services Authority (MFSA) and as a member of the EU, it has a legal framework similar to the UK providing a stable financial environment for pension assets. Malta pension schemes are recognised by Her Majesty's Revenue and Customs (HMRC) and has become a 'Mecca' for QROPS transfers as a result.
If you live in one of the 70-plus countries Malta has double taxation agreements (DTA) with, taxing rights may be granted in your country of residence. Maltese QROPS offer flexi-access drawdown (FAD) so both lump sum and income is paid gross and free of Maltese tax. However, without a DTA withholding tax of up to 35% may apply.
On death, remaining funds are paid out without deduction of Maltese Tax and taxation is passed to the member's residence under a valid DTA. Taxing of death benefits depends on the beneficiaries' country of residence and the duration the deceased had been non-UK resident at the time of death.
Gibraltar is a well-governed financial location and being a UK territory and a member of the EU provides comfort for investors. Solid regulatory and legal infrastructure makes it an attractive destination for QROPS and HMRC recognises pensions schemes as a result.
Pensions are governed differently in Gibraltar. Without DTA's with other countries, tax information exchange agreements are in place to avoid double taxation.
Pension commencement lump sums (PCLS) of up to 30% can be taken at age 55. Income thereafter is based upon UK Government Actuary Department (GAD) rates which are used to calculate annual income when in 'capped drawdown', and reviewed monthly relating to movements in medium/long dated UK gilt yields.
Gibraltar taxes pensions 2.5% at source, making it useful for countries that do not have a DTA in place, with for example, Malta. Tax may still be payable locally so always seek advice. Death benefits are paid to beneficiaries as a lump sum without Gibraltar tax, and any parts taken as income will be taxed at 2.5%.
Isle of Man
The Isle of Man is a world-renowned investment centre and was one of the first jurisdictions to offer QROPS and QNUPS (qualifying non-uk pension schemes). Overseas investors have enjoyed tax-efficient investing there for years and a robust regulatory framework makes it an ideal location for expatriate investment.
Income benefits start between age 55 to 75 and at between 0% to 150% of UK GAD rates. With effective DTA's in place, pension income is taxed in the member's country of residence. Without a DTA, withholding tax of 20% is deducted.
On death, the fund can be transferred to another scheme to provide income for dependants or paid out as a lump sum. If a lump sum is paid after drawdown has begun, 7.5% tax becomes due. If the member was a UK resident during the previous five tax years and dies after age 75, beneficiaries of the funds may have a UK tax liability.
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