Many individuals still dream of spending their golden years in another country, but it's crucial to organise your finances before making the transfer. The tax repercussions for your private pension are among the important factors to consider.
Where you are deemed to be a resident often determines how much tax you pay and where you pay it. If you retire abroad but are still considered a UK resident for tax purposes, you may have to pay UK tax on your pension.
Although you might have to pay tax in the nation you live in, you typically don't have to pay UK tax on your pension if you are no longer a resident of the UK. There are certain exceptions to this; in the UK, for instance, pensions from the civil service are always subject to UK tax.
Also note, there’s a chance you'll pay taxes in two nations if you reside in one without a "double taxation agreement."
If you're thinking about retiring abroad, you've probably heard of "Qualifying Recognised Overseas Pension Schemes," or QROPS.
A qualifying recognised overseas pension scheme is a type of overseas pension plan recognised by HMRC that can receive pensions built up in the UK.
Private or workplace pensions may be paid to you wherever in the globe you choose to retire; you are not required to join a Qualifying Recognised Overseas Pension Scheme if you wish to retire abroad.
Joining a QROPS formed in the nation where you live will allow you to receive your pension in local currency and avoid the risk associated with fluctuating exchange rates.
It's important to keep in mind that your fund will be compared to the UK lifetime allowance if you move to a QROPS when under 75 years old. A 25% fee will be applied to any pension savings that are more than the present cap, which is set at £1,073,100.
A 25% HMRC charge applies to transfers to qualifying recognised overseas pension schemes unless one of the following requirements is met:
A financial adviser will likely be required for everyone who wishes to open a QROPS. Also, ensure you fully understand the expenses and fees you will incur - both for the advice and for investing through the new programme.
You can find schemes that have told HMRC they meet the conditions here
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