Work permit and M.E visa to non b

[Expat Financial Adviser]

 

Just some information for anybody that has taken out a QROPS and wonders about the tax liability on death of their spouse (ie when the money is eventually left to the kids)

 

One of the many benefits of QROPS, compared with UK pensions, is the ability to bestow a pension fund on death.  Scheme members that retire abroad are not subject to the 55% UK tax charge on death which applies to members with UK pension schemes.  Whilst it is true to say that QROPS funds are also free of inheritance tax (IHT) on a member’s death, payment of a member’s QROPS fund as a lump sum death benefit – to his/her spouse for example – could nonetheless create an IHT liability on the eventual death of that spouse. Use of a Spousal Bypass Trust can ensure that QROPS death benefits are instead paid out first to a trust, completely separate from the spouse’s taxable estate, taking IHT out of the equation not just on the death of the member, but also on the subsequent death of the spouse.

[Hugh Jarse]

Very helpful. I am currently looking into a QROPS as need to get my modest fund out of the UK before HMRC change the rules and prevent further leakage of pension pots out of their domain.

[Expat Financial Adviser]

Please feel free to message me with a list of questions that you will naturally have. QROPS have many benefits but is not for everyone and I will tell you the facts "warts and all". You need to know charges, penalties and basically what can go wrong as well as right.

Then you can make an informed choice if it's right for you.

Contact me off the board

Cheers, Mark

[GuestHouse]

Can you tell the board what the set up and annual charges are?

If someone comes to you with a £100K pension pot, what charges would be applied and over how many years?

(actua numbers would be nice).

[Expat Financial Adviser]

There are a number of QROPS providers and they all have different charges. I have seen charges of 2,000 GBP per annum and as low as 850 GBP per annum. On top of this, you have to take in the investment charges (annual management charges etc ). However, don´t forget that you will be paying management charges already on your existing pension (presuming its not a final salary scheme). Overall a QROPS is more expensive than the charges on a standard UK pension fund so you have to weigh up the benefits against charges. Most people like the freedom of being able to pass 100% of the benefits to their spouse on death. And also a QROPS is usually more flexible on where you can invest your money.

Another thing you can do is if you want the freedom to manage your UK pension fund with a financial adviser then you can transfer the money to a UK SIPP therefore keeping the pension fund in the UK. I know of a London based company where the annual management charge on a UK SIPP is 250 GBP per annum. So a SIPP is certainly a cheaper option but does not come with the benefits of passing 100% of your pension fund to your spouse without tax.

Edited August 31, 2012 by Expat Financial Adviser

[wordchild]

Charges have come down alot over the last few years. it could have cost 20000+ for set up and yearly charges of 5k for a big scheme. Charges now a fraction of that for the admin, more like 2 to 5k for set up and 1k or 2k yearly charges on top. I have had a QROP for just under 5 years and now pay a similar yearly charge to what i used to pay on my onshore SIPP.

The thing to watch out for are the charges (sometimes hiddin) in the investment product. Offshore badged products tend to have much higher charges ,for little/no benefit, with most of the extra charges ending up back in the pocket of the advisor. Plain vanilla onshore funds (eg trackers) sourced through a discount broker are usually much better value.

IMO much better to go to a UK based IFA . Get everything agreed on a fee only (ie no commision) basis, and be prepared to pay a fair fee for good advice as this is a complex area.If possible go for an independent specialist trustee (not an insurance company) for the admin and keep the investment side independent from the advisor you use for the set up.

In particular run a mile from any advisor who trys to put you into anything called a "portfolio bond" or "offshore bond" these are structures designed for the benefit of the advisor not for you and charges can be huge and not always visible. In a financial mugging think of the portfolio bond as the guy who pins you down while your advisor and the fund manager go through your pockets. Quite rare now for UK based advisors to use these products, partly because of greater regulation and the clearly poor value they offer,however they still seem to be popular with offshore IFA,s, go figure!

Edited August 31, 2012 by wordchild

[TommoPhysicist]

Surely if you use pension drawdown you can pass the entire amount onto your spouse/children without the QPROPs charges.

[GuestHouse]

^

yes but where's the percentage in that?

[wordchild]

Surely if you use pension drawdown you can pass the entire amount onto your spouse/children without the QPROPs charges.

also not relevant for anyone whose wife is UK non-dom.

I am no expert on these things but I believe the way they work is the trust will make a loan to your spouse during her life out of the assets of the QROP, this is then repaid on her death hence no IHT. It does sound like an excuse for creating complexity (and so fees) and allowing the advisors to hold onto the money longer (and so more fees for longer, a win win! ). Also IMO exactly the sort of scheme HMRC is likely to look at closely in the years ahead if it becomes concerned about significant revenue loss.