Qualifying Recognised Overseas Pension Schemes (QROPS)
As a British expat in Switzerland, you can transfer your pension pot to a Qualifying Recognised Overseas Pension Scheme, tax-free up to £1 million.
For British expats residing in the Switzerland, UK pension pot transfers to QROPS are a viable option because they are protected with a ‘double taxation treaty’, meaning transfers won’t be hit with a 25% tax charge.
How it works
QROPS is a personal pension scheme which was established outside of the UK and which is recognised by HMRC – Her Majesty’s Revenue and Customs. If you qualify, QROPS enables you to transfer your existing UK pension and receive your benefits free of tax.
QROPS is for expats who have previously worked in the UK and have earned an income that has been paid into a Registered Pension Scheme.
Working with QROPS today
Before the changes that were implemented by the British government on 6th April 2017, there was a larger area of possibilities with regards to expatriates being able to transfer their pensions abroad.
The main advantage with the use of a qualifying recognised overseas pension scheme (QROPS) was that it almost guaranteed that the pension amount will not be taxed, subject to certain conditions.
It also provided a faster and more convenient route with regards to handling the pension of retirement fund for British citizens, and delivered a gateway by which to do it directly, from their country to the new state of residence.
Now, the list of recognised schemes, and the rules that apply to them have been changed, which means expats have to consider either other mechanisms, or partake in more than one transfer of the funds.
The QROPS system
Before the new rules were implemented, British citizens saw Switzerland as a great place to transfer their pension because of the sheer number of schemes available to them, alongside the benefit that they did not have to be residing there to use the facility.
As such, many expats are able to keep their funds safe and benefit from high quality advice, while moving to another country.
Some of the basic rules applicable to QROPS in general apply to the Swiss schemes as well, one of which is that funds cannot be withdrawn before the age of 55, unless exceptional circumstances apply.
The benefits of using Swiss schemes were multiple, including the ability to choose a major currency to collect the payment in, and the transfer gave them access to a better collection of investment items.
QROPS and tax implications
Once the funds are transferred to a Swiss QROPS scheme, there is no tax liability for either income or capital gains. There is also the unique advantage of not having to report anything over and above the requirements for a UK scheme.
As such, the QROPS system provided a facility that was as close as possible to the funds being kept in the UK.
No additional rules are applicable by virtue of the money being shifted, as far as tax reporting is concerned.
The tax liability attaches only once the funds are accessed, and will not apply when a Swiss QROPS is used for a transfer.
The rules now provide that British citizens cannot transfer directly to QROPS in Switzerland.
This however does not mean that you cannot use Swiss QROPS, or take advantage of the benefits.
In light of the changes, depending on your situation, your financial planner may suggest that you use the SIPP alternative, which now more than ever, closely resembles the QROPS.
The other option is to move the funds to a QROPS in another country first, which will help you avoid the taxes a direct transfer to a Swiss QROPS would have.