Labour Budget 2024: Changes To QROPS Rules
If you’re a UK expat or you’re planning on retiring abroad, recent changes to the QROPS (Qualifying Recognised Overseas Pension Schemes) rules may affect your pension options.
The Labour government's 2024 Budget, announced on 30th October 2024, stripped the Overseas Transfer Charge exemption from the UK EEA and Gibraltar- meaning a QROPS is no longer a viable option for most UK expats.
Key QROPS Changes 2024
In the past, UK expats could transfer their pensions to a QROPS - typically based in Malta or Gibraltar - without being subject to the 25% Overseas Transfer Charge. This meant that transferring your UK pension to an overseas scheme could offer flexibility, the potential to avoid double taxation, the removal from UK IHT liabilities, and the ability to access your pension in your local currency.
However, with the October 2024 Budget comes significant changes. From October 30th, 2024, the EEA (European Economic Area), the UK, and Gibraltar are no longer exempt from the Overseas Transfer Charge.
This means transferring your pension to a QROPS in these jurisdictions will now incur a 25% charge, a penalty which will reduce your pension pot by a staggering one-quarter.
HMRCs Stance On Double Tax-Free Allowances
With these new rules, HMRC effectively closes a loophole which some expat pensioners had been taking advantage of.
Since the abolition of the Lifetime Allowance (LTA) on pensions, which came into effect from April 2024, there was no longer a cap on how much an individual could contribute to their pension without triggering additional tax penalties.
As a result, some expats could transfer excess pension funds into a QROPS, take the maximum tax-free lump sum from their UK pension, and then access additional tax-free cash from the overseas QROPS scheme.
This allowed some cases of individuals effectively doubling up on tax-free cash allowances, which is no longer possible under the new rules.
What Does The Labour Budget Mean For Expat Pensions?
The Overseas Transfer Charge now applies to all pensions transferred to QROPS in Malta, Gibraltar, and the EEA, and unless you are a resident in the same country as the QROPS, moving your pension to these jurisdictions no longer makes sense.
Since most expats simply can’t afford to lose a quarter of their hard-earned retirement funds, transferring to a QROPS is no longer a viable option.
Alternative Pension Solutions For UK Expats
Fortunately, as a British expat there are better solutions available to manage your pension:
Leaving Your Pension In The UK
You can choose to leave your pension in the UK and continue to manage it from abroad. However, this does carry risks.
Many UK pension providers may not make pension payments to international bank accounts, and many expats struggle to keep UK bank accounts when living abroad.
Furthermore, leaving your pension in the UK will expose you to currency exchange risk. This is a loss due to exchange rate fluctuations when transferring your pension payments from sterling to your new local currency, potentially reducing your pension funds over the long term.
The International SIPP
The International SIPP (Self Invested Personal Pension) is an ideal pension solution, as it is designed specifically for British expats living abroad.
As a UK based scheme, your pension will remain in the UK, ensuring the security and protection of UK pension regulators.
An International SIPP also offers flexibility to expats, with multi-currency options, making it possible to manage your pension pot globally.
This solution also features a strong investment component, giving you access to an array of investment opportunities with the potential to grow your wealth over time.
Advice For UK Expats
The October 2024 Budget has undoubtedly made significant changes to the pension landscape for UK expats, but these new rules don't have to negatively impact your retirement plans.
There are better, lower cost and more tax-efficient options available.
At The Wealth Genesis, we are independent cross-border experts. If you're unsure of how these new rules may affect you, or if you want to explore better pension alternatives to a QROPS, get in touch with us today using the diary below.
