David Evans of Spectrum IFA Group poses for a portrait taken earlier this year for Delano by Mike Zenari.
Britain’s exit from the EU might bring to an end the international transferability of UK private and ex-company pensions.
This could have serious tax implications for Brits who previously worked in the UK and are not planning to return to retire. What are the options?
European law enables British expats to take their pension savings out of certain private schemes in the UK. This can have major tax implications. For example, UK pension payments are taxed at source, and would be taxed again if brought over to Luxembourg. However, thanks to the Qualifying Recognised Overseas Pension Scheme (QROPS), pension savings in some private schemes can be moved out of the UK. This would guarantee harmonised tax treatment for an individual’s entire pension pot.
Of course the full terms of the UK’s exit from the EU will remain unclear for several years, but QROPS would appear to be vulnerable to change. Abolishing it would be a quick way for the UK tax office to claim millions in revenue they are now losing.
Potentially things could move extremely quickly. It has to be a possibility that with the country headed out of the EU, there would be the temptation to break existing arrangements unilaterally. After all, if politicians believe EU law would no longer apply in a couple of years, they might be tempted to make a bold, politically attractive move. As much as £9bn of pension savings have already moved out of the UK under this scheme, and the government might seek drastic measures to stop this flow.
“My advice is that people should get their personal situation checked out,” said David Evans, a partner at Spectrum IFA Group. “This can get quite complicated, so it is good to have the options spelt out, as a failure to act could be quite expensive,” he added.
Questions for ex-EU officials
Even if you have a QROPS you might need to check on its current status. Two Luxembourg trusts have recently been removed from the UK tax office’s authorised list, and this might leave you vulnerable to a tax bill if the courts decide an “unauthorised transfer” has taken place. EU employees also need to beware.
Under current rules, anyone who has worked for less than ten years at an EU institution (other than the European Investment Bank) will not receive an EU pension on these savings. To benefit the individual will need to “transfer out” to a national or private pension scheme. Again this could become relevant for many with Brexit in the offing.
It was always important to have harmonised, logical pension arrangements. However, when article 50 is triggered, this need might become more pressing.