India's UK Expats can explore International SIPP over QROPS following recent regulations on QROPS.
The data shows that Indian forms the world’s largest diaspora population, making the largest source of labour for world market.
In UK itself the estimated number of Indians living is not less than 14.5 lakhs. What is interesting is India based UK expats who are & were working in the United Kingdom used to contribute their sizeable earning to the personal pensions there. Till recent regulation by UK Government w.e.f., 09-12-2017, the most attractive option for India based UK expats for getting their UK pensions transferred was QROPS.
In brief, a Qualiifying Recognised Overseas Pension Scheme (QROPS),is an overseas pension scheme that meets certain requirements set by HMRC-UK. A QROPS must a have a beneficial owner & trustees, and it can receive transfers of UK Pension Benefits. A QROPS can be appropriate for overaseas based UK expats who left the UK to emigrate permanently & intend to retire abroad having built up pension fund.
New Regulation on QROPS: Charge on UK pensions transfers w.e.f., 9th, March 2017.
This new regulation ensures that UK Pensions transfers to QROPS requested on or after 9th, march 2017 will be taxable unless, from the point of transfer, both the individual and the QROPS scheme are in the same country or both are within the EEA. If this is not the case, there will be a 25% tax charge on the transfer value & the tax will be deducted before the transfer made by the UK pensioner’s making the transfer.
This sudden change also widens the scope of UK taxing provisions so that, following a UK pension transfer by individual to a QROPS on or after 6thApril 2017, they apply to payments out of those transferred funds in the five tax years following the transfer. This measure supports the UK Government’s objective of promoting fairness in the tax system. It continues to allow overseas transfers from pension schemes that have had UK tax relief that are made when people leave the UK & their pension savings with them to their new country of residence.
The overseas transfer charge is effected for the UK pensions transfer requested on or after 9thMarch 2017 & the extended taxing provisions on payments out of QROPS would have effect on & after 6thApril 2017.
The important point is to be noted from the above mentioned new regulation by UK Government on UK registered pensions transfer to the overseas QROPS is, before this regulation of 9thMarch 2017, UK registered pension members had no restriction of choosing QROPS from different jurisdictions. For example, an India based UK expat could have chosen QROPS schemes from jurisdictions like Malta, Gibraltar, Australia etc., to get his UK pensions transferred though he is not tax resident there temporarily or permanently. For Instance, an India based UK expat, usually settles in India but interested to choose QROPS schemes from jurisdictions like Gibraltar, Malta etc., for the very reason that he could invest in those QROPS in multiple currencies & also avail benefits on maturity with the currency he chose. There are also other important reasons to invest in those QROPS jurisdictions.
But, after this new UK regulation from 9th, March 2017, it is mandatory to choose QROPS in a country where you are permanently settled. In other words, both the individual and the QROPS scheme are in the same country or both are within the EEA. For example, if you have relocated to India from United Kingdom, you need to choose QROPS scheme based in India only.
This new regulation of 9th, March 2017 denied access to the most attractive QROPS jurisdictions like Malta, Gibraltar etc., for those Indians who wants to retire in India & at the same time who wish to invest their UK pensions in OFF Shore QROPS, so that they can avail the following benefits:
a) The fund can be valued in any currency, GBP, USD etc, thereby excluding currency risk
b) HMRC have given written consent and favour to the tax position of some offshore QROPS, especially in Gibraltar which is the most appropriate scheme for a resident of India.
c) If you move back to the UK or anywhere else in the world the QROPS is still appropriate.
d) Income can be taken when you want it. Therefore if you plan to retire at age 60, the QROPS can start income then, or is flexible enough to be transferred into India at that time, when your annuity rates will be higher because of age and your income tax lower because of stopping working.
e) Depending upon residency status there may be no income tax to pay in India on the income received and only 2.5% to pay in Gibraltar
f) Income can be paid to any bank, anywhere in the world.
g) On death, the entire corpus is transferred to your beneficiary tax free.
And many more advantages….
Post UK regulation on QROPS ,9thMarch 2017 many India based UK expats have been considering SIPP(self invested pension plan) alternative to QROPS.
With International SIPP’s India based UK expats can avail almost all the benefits of QROPS that were availed prior to UK regulation on QROPS ,9thMarch 2017 including the expat can choose SIIP from attractive Jurisdictions like Gibraltar, Malta etc..
In other words they are international SIPP’s quite similar to QROPS but regulated by UK. India based UK expat can invest in GBP or other currency. Even he could have options to invest in India markets if client wants. Below are the F & Q’s of International SIPP’s.
What is a SIPP?
SIPP is a personal pension that allows you to invest in a wide range of investments.
Can I have a SIPP?
If you are resident outside the UK, you can set up international SIPP with recognized trustees for the purposes of transferring benefits from a UK registered pension scheme.
Transfers
Can I transfer my existing pension benefits into my SIPP?
You can transfer benefits from any UK registered pension scheme into your SIPP. You can transfer your existing pension benefits into a SIPP even if you have commenced drawdown under the transferring scheme*.
Can I transfer QROPS into my SIPP?
You can transfer QROPS into your SIPP*.
Can I transfer my SIPP into another pension plan?
You can transfer part or your full SIPP to another UK registered pension scheme at any time. If you have already taking benefits from your SIPP, then the full value of these benefits must be transferred at one shot. If you have uncrystallised, you can transfer full or only a part of the fund.
Can I transfer my SIPP into a QROPS in India?
You can transfer part or your full SIPP into QROPS in India*. If the transfer is to a QROPS, a test against LTA must be carried out before the transfer payment is made.
Can I managed to get SIPP that can invest in INR ?
Yes, you can now managed to get SIPP invested that can invest in INR(Indian currency). You can always switch among different currencies. So that no currency risks exists.
Do I have options to invest in India markets/Funds ?
Yes, you could have options to invest in India markets/Funds if you wish. The below link is one example of INR in SIPP.
What if I am an UK resident ?
If you are UK resident many SIPP may be more suitable to your requirements.
What are stakeholder pensions ?
Stakeholder pensions are relatively simple pension plans for which the Government has set a minimum standards to be met by providers covering areas such as charges, minimum payment levels & terms & conditions.
Who can pay contributions into my SIPP?
If you are a relevant UK individual you can pay personal contributions into your SIPP. In addition, contributions can be paid by another person on your behalf like, spouse, parents, grand parent.
All contributions paid by you, or on your behalf , except those paid by an employer, are payable net of basic rate of income tax, which is currently 20%. The SIPP provider reclaim the basic rate income tax from HMRC.
Can my Employer contribute into my SIPP?
Your employer can also contribute into your SIPP. All employer contributions are payable gross.
After establishing SIPP can I increase and /or decrease my regular contributions ?
After establishing SIPP, you can pay future single contributions and /or to increase /decrease your regular contributions at any time. No penalty for altering contribution sizes.
Please explain the Annual Allowance for contributions ?
The Annual Allowance is the total amount of pension contributions that can be made to one or more of your registered pension schemes in a pension input period that will qualify for a tax relief. The Annual Allowance is 40,000 GBP for the current tax year.
From 6 April 2016, if you have income, including pension contributions, in excess of 150,000 GBP a Tapered Annual Allowance will apply & the above Annual Allowance will be reduced by 1 GBP for every 2 GBP income you have in excess of the 150,000 GBP, subject to a maximum reduction of 30,000 GBP in the current tax year.
More specifically, a pension input period is determined over a period of no more than 12 months during which the pension input amount is measured. The pension inpt amount is the total of contributions to registered pension schemes paid by you, or on your behalf(including any paid by an employer), & the increase in the value of your benefits under any defined benefit schemes. A factor of 16 GBP per 1 GBP p.a of pension is currently used to value the increase in pension benefits under a defined benefit scheme. If for any pension input period ending in a tax year the pension input amount exceeds the annual allowance, you will have to pay a tax charge on the excess. The tax charge will be based on the marginal rate of tax relief received on the contribution.
For the purposes of your SIPP, the pension input period will always coincide with the tax year i.e. end on 5thApril.
If you access your benefits flexibly then you will trigger a lower Money Purchase Annual Allowance (MPAA). This lower MPAA is set at 40,000 GBP for the current tax year.
Provided you have not triggered the MPAA, you may also CARRY FORWARD unused Annual Allowance from the previous three tax years, provided you were a member of a UK Registered Scheme in the respective carry forward tax year. Carry forward is subject to a maximum of 40,000 GBP for tax years 2017-2018, 2016-2017, 2015-2016 & the amount you can carry forward is reduced by your Annual Allowance usage during those tax years. In order to carry forward you must use up the current year’s Annual Allowance.
What if I am entitled to enhanced protection or fixed protection?
It is very important to note that if you have registered with HMRC for enhanced protection(for pension rights built up before 5 April 2006) or fixed protection to reduce or eliminate liability to the LTA charge, the payment of any contribution to your SIPP will lead to the loss of this protection.
What if I access my benefits flexibly and pay a contribution?
If you have applied to access your benefits flexibly, for instance through Flexi- Access Dradown or Uncrystallised Funds Pension Lumpsum, you will trigger a lower money annual allowance. The MPA for current tax year is 4000 GBP.
Do I get tax relief on my contributions ?
For each tax year, you will get tax relief on contributions paid by you, or on your behalf, of up to the higher of 3600 GBP & 100% of your relevant UK earnings.
If you do not have any relevant UK earnings but are a UK relevant individual, you can still pay a contribution of upto 3600 GBP gross a year & receive basic rate tax relief.
You will receive tax relief at your highest rate of income tax on all member contributions paid into your SIPP either by you or on your behalf subject to your available annual allowance in that period.
We wish to schedule a free, no obligation telephone or Email consultation to discuss ways we can help yourself and any of your colleagues. You can reach us with the following contact details.
Mr Ravi Kumar. Financial Consultant (Code: 60272381, QROPS Consultancy),
A&B Law & Financial Associates, No-2720, 12th, Main, Jayanagar 4th Block, Bangalore-560 011
Cell: +919844519872
Email: ravi.sampige@gmail.com
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