International SIPP

QROPS and SIPPS both have key advantages but as the differences between the two options have gradually reduced, an international SIPP can provide a more cost-effective alternative. 

SIPPs (self invested personal pension) offer greater flexibility than many occupational schemes, giving you control over where and how your money is invested. Attitude to risk, fund performance and charges all affect how your pension performs.

Investment guidelines of overseas pension trustees can vary with many still allowing the purchase of securities not permitted in the UK. Securities being sold to generate commission for advisors is common, creating a drag on performance and restricting liquidity, so ask for clarification if in doubt. 

Investment flexibility 

SIPP investment guidelines are designed to ensure suitable levels of diversification, with the following being  defined as 'standard assets' in the FCA Handbook.

  • Cash funds

  • Real estate investment trusts (REIT)

  • Government, local authority and other fixed interest stocks

  • Collective investment funds in the UK (or overseas and recognised by the FCA)

  • Equities, stocks and shares

  • Cash deposits

  • Managed pension funds

  • Exchange traded products

  • Structured products (with a secondary market)

Restricted Investments include:

  • Movable property (such as art, wine, classic cars, antiques)

  • Residential property

  • Personal loans

  • Ground rents

Taking income

You can draw on assets after age 55 or possibly earlier if you are in poor health. Income can be taken as a lump sum, income or a combination by:  

  • Purchasing an annuity

  • Drawdown of pension income

  • UFPLS (uncrystallised funds pension lump sum)

A PCLS (pension commencement lump sum) of up to 25% can be taken tax-free at the time you designate how you want pension income to be paid, with the remaining fund being taxed at your marginal rate.

Death Benefits

On death of the scheme member, benefits can be paid as a lump sum or to provide income for those elected as beneficiaries, either through flexi-access drawdown or annuity purchase. Administrators of the scheme officially decide to whom the death benefits are paid, taking into consideration member's wishes.

How remaining funds are distributed is determined by age at the time of death. Dying before or after age 75 affects the taxation of death benefits. 

• Death before 75 - payments are paid tax-free whether taken as either lump sum or income.

• Death at or after 75 - payments will be subject to UK income tax at the survivor’s marginal rate of tax.

The Costs

SIPPs generally cost less than QROPS and although many trustees still charge set-up fees, there has been a shift by more forward-thinking providers towards zero set-up and reduced ongoing charges. 

SIPPs cost as little £180 per annum regardless of investment size. Other costs may apply for holding direct shares or setting up drawdown arrangements. 

Tax Relief on Pensions

SIPP contributions can be made under the age of 75. Returning expats receiving UK earnings can qualify for tax relief on contributions as a 'relevant' UK person, which under Section 188 of the Finance Act 2004 will not exceed in any one tax year the greater of:

  •  £3,600 - the basic gross amount for the current tax year, or

  •  100% of all relevant UK earnings in the current tax year (see below)

Even if not employed, up to £2,880 can be paid in annually that still qualifies for tax relief (£3,600 less 20% paid by the government). 

A person is classed as a relevant UK individual for a tax year if they:

  • were resident in the UK during the five tax years prior to the tax year in question, and also UK resident when joining the pension scheme, or

  • have relevant UK earnings subject to income tax for that tax year, or

  • are resident in the UK at some point during that tax year, or

  • have earnings from Crown employment overseas subject to UK tax (defined in section 28 of Chapter 5 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003, or

  • are the spouse of an individual (or civil partner) with general earnings from overseas Crown employment for that tax year subject to UK tax (also defined in ITEPA 2003).

An annual allowance of £40,000 per annum (2018/2019) applies to SIPP contributions in a Pension Input Period that qualify for tax relief. ​Without UK earnings, the maximum contribution is the basic amount of £3,600 gross.

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