Understanding QROPS for UK Expats—What You Need To Know

In this guide, we’ll provide the QROPS definition and explain its five-year and ten-year rules. We’ll also outline what a QROPS transfer entails, cover the various taxation rules associated with QROPS, and provide the steps for making a QROPS transfer.

What Is a QROPS?

A qualifying recognised overseas pension scheme (QROPS) is an overseas pension scheme recognised by His Majesty’s Revenue and Customs (HRMC) as eligible to accept transfers from a UK-registered pension scheme. This allows expats to transfer their UK pension overseas without incurring unauthorised payment fees.

An overseas scheme typically must have similar rules to UK pension schemes to be classified as a QROPS and accepted by HRMC. For example, its withdrawal rules shouldn’t let you access your pension before the age of 55 (57 from 2028) as that aligns with UK pension withdrawal requirements.

The pension schemes that meet HMRC requirements qualify as recognised overseas pension schemes (ROPS). To be considered a ROPS, the pension scheme typically must be:

• Based outside of the UK
• Registered as a pension scheme with the tax authority in an overseas country you live in
• In compliance with regulations set by the relevant pensions authority or financial regulator in the country of operation

The qualified ROPS are included on the QROPS list that the UK government manages and updates twice a month. However, the list doesn’t guarantee ROPS requirement compliance or tax-free transfers, so make sure to confirm all the details with the pension provider of the scheme you want to transfer to.

Who Is Eligible for a QROPS Pension Transfer?

You generally qualify for a QROPS transfer in the following cases:

• You’re an expat who’s considered a UK non-resident.
• You’re a UK resident who plans to emigrate in the next 12 months.
• You’re a UK expat planning to retire abroad.
• You’re a UK expat who accumulated funds in a private pension scheme.
• You accrued benefits in a UK pension scheme by working in the United Kingdom despite being born outside of it.

What Are the Benefits of a QROPS?

Choosing a QROPS pension plan as a UK expat can help you preserve your wealth and make tax-efficient financial decisions. The main advantages of transferring your UK pension to a QROPS are:

To make your QROPS as beneficial as possible, experts at Titan Wealth International can assess factors such as investment options and fees to identify areas for improvement and develop a strategy that aligns with your retirement goals.

What Are the Main QROPS Rules?

Your QROPS must adhere to the strict laws HMRC imposes. The two main rules are:

1. QROPS 5-year rule
2. QROPS 10-year rule

QROPS 5-Year Rule

If you transfer your UK pension to a QROPS and later return to the UK within five years, any pension withdrawals you made while non-resident may become subject to UK taxation.

This rule applies only to UK expats who transferred their pension to a QROPS before 6 April 2017.

To avoid UK taxation on withdrawals made while overseas, you must have been a UK non-resident for five consecutive tax years before taking pension benefits.

QROPS 10-Year Rule

After 6 April 2017, the 5-year rule was extended to ten years. Your QROPS provider must report any payments you made for 10 years after transferring your pension. They must also report any unauthorised withdrawals—like accessing your funds before turning 55.

If you access your funds earlier than HMRC allows, you may incur an automatic tax charge of at least 40% of the withdrawn amount. You may also have to pay an additional 15% if the withdrawn amount is higher than 25% of the total pension value.

What Is a QROPS Pension Transfer?

A QROPS pension transfer is the process of moving your pension from a UK-registered pension scheme to an overseas pension plan that qualifies as a QROPS under HMRC rules. This type of transfer is useful if you’re a UK expat living outside of the UK and you wish to:

• Keep your pension in a country where you plan to retire to avoid the impact of fluctuating exchange rates
• Track the changes in tax regulations more easily as they will apply to your country of residence
• Take advantage of a pension scheme with better benefits if your foreign employer offers one

Still, there are numerous rules and restrictions you must adhere to when transferring your pension to a QROPS. It’s best to speak to an expert before making the decision to transfer your funds.

Can I Transfer a QROPS to Another QROPS?

You can transfer your pension from one QROPS scheme to another. The main reasons some expats choose to do so include:

It is recommended that you consult a pension transfer adviser before transferring your pension to another QROPS. Experts at Titan Wealth International offer a full analysis of your current QROPS, comparing its performance to industry benchmarks to help you determine whether you should consider a QROPS transfer.

Can I Transfer a QROPS to a UK Pension Scheme?

Yes, you can make a QROPS transfer back to the UK. Before you do, it’s important to consider the transfer fees that may come from both the UK pension scheme and your QROPS provider. Depending on the provider, QROPS may also include an exit fee.

The HMRC must recognise the UK pension scheme to which you want to transfer your pension. This is why most expats choose to transfer QROPS to SIPP—a self-invested personal pension.

A SIPP is a personal pension scheme that allows you and your employer to make contributions. The funds are then invested in various assets like shares, investment funds, and property.

SIPPs offer similar benefits to a QROPS but also include:

• Lower fees
• More contribution and withdrawal flexibility
• A wider range of investment options
• Tax-free growth

SIPPs also provide tax relief between 20% and 45% on personal contributions, which applies to your earnings of up to £60,000 if you’re a UK resident younger than 75. However, QROPS can offer a more favourable tax treatment if the country where it’s based has lower taxes (or no taxes) on pension withdrawals.

What Are QROPS Tax Implications?

Transferring your UK pension to a QROPS can bring tax advantages, but it also comes with complex tax implications. Generally, your tax obligations depend on your chosen QROPS and the country you’re moving your pension to.

The main factors to consider include:

1. QROPS tax charge for accessing your pension.
2. QROPS taxation for transfers to another pension scheme.
3. Taxation of a QROPS pension transfer overseas.

QROPS Tax Charge for Accessing Your Pension

Transferring your UK pension to a QROPS does not automatically exempt you from UK taxation when you begin withdrawing funds. There are several rules to comply with in order to avoid UK tax charges:

• 10-year UK non-residency rule: You must be a UK tax non-resident for ten full, consecutive years before accessing your QROPS pension to avoid potential UK taxation.
• 5-year rule for withdrawals: You should not withdraw from your QROPS within five full, consecutive UK tax years of a transfer to avoid potential UK tax liabilities.
• Age restriction on withdrawals: To avoid a UK tax charge of up to 55% on the withdrawn amount, you should not access your QROPS before age 55, unless you qualify for early retirement due to ill health.
• Residency considerations: If you resume UK tax residency within five full, consecutive years of a QROPS transfer, UK taxation may apply to your pension withdrawals.

How QROPS Withdrawals Are Taxed

If you are a UK tax resident at the time of withdrawing funds from a QROPS, you will generally be subject to UK income tax on your pension income—regardless of where the QROPS is based.

However, if you are a tax resident in another country, the taxation of your QROPS withdrawals will depend on:

• The tax laws of your country of residence.
• Whether a double taxation agreement (DTA) exists between that country and the UK.

A DTA may allow you to avoid being taxed twice on your pension income by ensuring taxation occurs only in one jurisdiction.

It is essential to seek professional tax advice to determine the most tax-efficient way to access your QROPS funds.

QROPS Taxation for Transfers to Another Pension Scheme

If you transfer your pension from a QROPS to a non-recognised overseas pension scheme, the transition will be treated as unauthorised payment, and you’ll be liable for a minimum of 40% tax charge and other potential additional tax penalties.

Additionally, transferring your QROPS to an unregulated scheme may result in:

• Unexpected tax liabilities and compliance issues.
• Reduced pension protections, meaning no access to UK regulatory safeguards or compensation schemes.

To avoid financial and tax risks, professional advice is recommended before transferring your QROPS to another pension scheme.

Taxation of a QROPS Pension Transfer Overseas

The Overseas Transfer Charge (OTC) was introduced in 2017 and applies a QROPS 25% tax charge on certain QROPS transfers. Originally, QROPS transfers within the European Economic Area (EEA) were exempt, but from 30 October 2024, this exemption was removed.

You may be liable for the 25% OTC if:

• You transfer funds to a QROPS in the EEA or Gibraltar while living outside the UK, EEA, or Gibraltar.
• You transfer funds to a QROPS in the EEA or Gibraltar and later move outside these areas within five years.
• You transfer assets to a QROPS outside the UK, EEA, or Gibraltar while living outside the country where your QROPS is located. However, your tax charge will be refunded if you relocate to that country within five years.
• You fail to submit the required Form APSS263 within 60 days of the transfer request.

You typically would not have to pay the OTC if:

• Your transfer process began before 9 March 2017.
• Your employer provides the QROPS to which you’re transferring.
• You live in the country where your QROPS pension scheme is based.

However, due to the 30 October 2024 rule change, UK or EEA residents can no longer transfer to QROPS in low-tax jurisdictions like Malta without incurring the 25% tax charge. This change prevents individuals from benefiting from tax-free pension transfers while living in the UK.

What Is the Overseas Transfer Allowance?

The overseas transfer allowance (OTA) was introduced on 6 April 2024, to replace the checks made against the lifetime allowance (LTA).

Previously, the lifetime allowance was set at £1,073,100, allowing individuals to grow their pension savings up to this amount without facing tax charges. The OTA works in a similar way, but it specifically applies to transfers of pension funds from a UK pension scheme to a QROPS. For the tax year 2024/25, the OTA limit is also £1,073,100.

If you exceed this amount when transferring your pension from a UK scheme to QROPS, you must pay a 25% tax charge on the excess amount.

Other QROPS Allowances

Besides OTA, keeping your pension funds in a QROPS brings additional tax benefits in the form of:

• Lump Sum Allowance (LSA): A sum of up to £268,275, or 25% of your entire pension pot, which you can withdraw tax-free
• The Lump Sum and Death Benefit Allowance (LSDBA): A sum of £1,073,100 that your beneficiaries can receive tax-free after your death

Any amount over these limits is taxed at a marginal income rate.

How Do I Make a QROPS Transfer?

While setting up a QROPS is similar to any other pension transfer, it includes several crucial steps to ensure the process goes smoothly and complies with UK regulations:

1. Speak to a financial adviser: A financial adviser can provide tailored advice by taking into consideration your specific circumstances. They will ensure you understand the QROPS transfer implications and help you complete your pension transfer.
2. Consult with your current pension provider: Speaking to your UK pension provider will help you confirm whether the transfer to QROPS is possible. If it is, you’ll have to complete and submit “transfer out” forms to start the process.
3. Contact your QROPS provider: Find a QROPS that suits your needs and financial goals. Take into consideration the QROPS jurisdiction, investment options, and tax efficiency.
4. Check the HMRC’s QROPS list: Prior to choosing a pension scheme to which you wish to transfer your pension, check if it’s included in the HMRC’s QROPS list.
5. Complete Form APSS263: Download and fill out Form APSS26 to complete the pension transfer. When you fill out the form, give it to your UK pension provider.
6. Be patient: Although some pension transfers are quicker than others, transferring your pension overseas usually takes time, so be prepared to wait.