SIPPS advantages over QROPS for UK expats

Published:  13 Apr at 6 PM
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Whilst QROPS have been seen as the answer for expats of pensionable age, numbers of retirement savers shifting their money to a self-invested personal pension (SIPPS) have soared since pension freedom was introduced.

The numbers of retirement savers choosing a SIPPS has doubled since the start of pension freedoms, with some 43 per cent of fund movements on behalf of 90 of the UK’s pension companies heading into SIPPS. Previously, only one in five transfers involved SIPPS and in 2017 one third of all transfers to SIPPS were from personal pensions. As a result of the increasing interest, SIPPS are now seen as attractive for Brit expats as well as UK residents.

According to Paul Pettit, fintech hub Origo’s MD, there’s now an established trend towards using pension vehicles which include the enhanced drawdown flexibility and greater IHT now available since April 2015. Quite simply, SIPPS offer do-it-yourself investors a greater amount of control than straightforward UK pension products, with the major difference being exactly how the funds are invested.

As regards the available range of investments, SIPPS wins out by miles, with a much wider choice than the limited range of funds supervised by standard pension providers’ own fund managers. SIPPS investors can choose between quoted overseas and UK stocks and shares, unlisted shares, investment trusts, collective investments such as unit trusts, gilts, insurance bonds, land and non-residential property and exchange-traded bonds. In some cases, SIPPS can be used to raise a mortgage against property, with rental charges set towards paying down the loan and maintenance costs of the property and, in general, SIPP investments can grow without being subject to income tax or capital gains tax.

For expats, there are two rules associated with SIPPS, the first relating to UK taxpayers, who can take pension contribution relief on their retirement savings. For expats with tax residency outside the UK, there is no tax relief on contributions. Pension freedom still applies with SIPPS, with savers over the age of 55 able to draw down as they wish, remembering that 25 per cent of the total is tax free and income tax is payable on withdrawals exceeding that amount.

The good news is that the recently announced 25 per cent tax on pension transfers does not apply to SIPPS as it’s only specific to QROPS under certain circumstances. SIPPS are also good for estate planning, as inheritors of unspent pension funds are not liable for income tax or inheritance tax provided the deceased retirement saver was not over the age of 75 when he passed. Expats considering SIPPS should consult a trustworthy IFA to ensure the move is suitable for their individual circumstances.

Source: iExpats
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