The Spanish Tax Advantage - Part 2

30/01/12

 Tax efficient pensions

Many individuals find pensions confusing and the global recession and so called “credit crunch” has created a great deal of concern over pension invested funds. This is only compounded when you move overseas as you may also be affected by exchange rate fluctuations.

Well the overseas part shouldn’t worry you, in fact as a result of living overseas there are significant advantages open to you with regard to your UK pension arrangements.

In April 2006 and 2011, UK pension legislation changed allowing persons living outside the UK to transfer their pension assets to an alternate overseas pension scheme. These have been formally named Qualified Recognized Overseas Pension Schemes or QROPS for short.

Although not for everyone, these schemes offer significant flexibility and tax advantages over that as offered by UK sited schemes. By transferring your existing pension assets to a QROPS you could save up to 55% in tax charges on 1st death succession and further 55% on 2nd death succession. In short this means that your heirs will truly benefit from your life time’s work rather than your adopted child the UK chancellor.

In the majority of cases a transfer to an overseas scheme proves to be in the policy holder’s best interest as advantages of transferring to a QROPS include:

· No need to make life long decision now that are locked in
· No requirements to purchase an annuity
· No requirements to pay UK tax charge upon death
· Tax efficiency on Income Drawdown
· Currency hedging (as you could receive your income in the currency of your resident country)
· Better inheritance provisions
· Far greater freedom of investment choices

However, it’s not for everyone and in certain circumstances a transfer could prove to be a disadvantage, such as certain defined benefit schemes. Also be aware that some companies and individuals claim that you can 100% commute your pension by transferring to such jurisdictions as New Zealand.

Whilst this is possible you need to be aware of the possible implications of such transfers. For example some claim that this can be done “tax free”.  If by “tax free” they mean there are no taxes to pay in New Zealand, then they are correct. However the tax position in either the UK or Spain may differ considerably. Indeed the legislation that allowed this is set to change with reforms to the UK Financial Act planned for April 2012. These changes will put a stop to this practice which will in turn provide greater consumer protection.

In short before embarking on an overseas pension transfer ensure that you are talking to a trusted and regulated company and that you are made “fully” aware of the implications should you return to the UK and as such your tax liabilities.

To find out more please contact me on 0034 952 816 443  or 0034 622 345 558 or simply email me at .(JavaScript must be enabled to view this email address)