The benefits of QROPS in Spain

Why is a QROPS better for UK pensioners living in Spain?

couple-in-carThousands of UK nationals emigrate to Spain every year, attracted by the Mediterranean climate, the ease of finding affordable and short flights to and from the UK, the large numbers of English-speaking expats already here, the lower cost of living and the lifestyle in general.

Many of those coming to Spain, though, are unaware of the advantages which could become available to them if they were to apply for a QROPS (Qualified Recognized Overseas Pension Scheme).

The principal benefits of QROPS schemes are felt by those who have officially taken up residence, and spend over 183 days every year in the country, but those who currently spend more time in the UK are sometimes also well advised to set up a QROPS if their intention is move out here “full time”.

Most of those who come to Spain and set up a QROPS are advised to choose a scheme in either Malta or Gibraltar in order to enjoy benefits including a 30% tax-free lump sum and the ability to bequeath 100% of the fund upon death. In addition, by declaring the pension income as an annuity very favourable tax treatment can be obtained.

Investment flexibility
Investment choices in UK pensions are usually limited by the fund administrator, but QROPS offer the widest possible choice of investments, allowing you to pick from a range of global asset classes including investment trusts, stocks and shares, gilts and bonds, cash, and even commercial property.There is no limit to the size of funds a QROPS can hold, so it can continue to grow once set up, free from capital gains tax.

Pension plan consolidation
Multiple UK pensions can be combined within one QROPS scheme, making them more cost-effective.

Protection of assets from creditors and divorce
It is harder for UK courts to take action to seize or lay claim to funds contained in a QROPS than in the case of a normal UK pension.

Currency options
UK pensions pay out in sterling regardless of where the beneficiary lives, but QROPS schemes can invest and pay out in most major currencies, so the effect of currency fluctuations can be substantially reduced.

No Lifetime Allowance cap (1.25 million pounds in the UK)

Annuity purchase unnecessary
In the past 75% of a British pension fund had to be used to buy an annuity, which provided guaranteed lifetime income but meant low yields which were subject to income tax, and when a person died their pension fund effectively died with them. This danger is avoided through a QROPS, where unused funds are passed on to the family when the fundholder dies.

10-year reporting period (no limit in the UK)
The QROPS provider will report to the tax authorities (Hacienda) for a period of ten years on pension income, whereas in the UK information is passed on to HMRC until the pensioner dies.

Flexible income drawdown rules
The drawdown amount on UK pensions is calculated using the Government Actuarial Department rates, which are now at their lowest ever, but QROPS are allowed to use different calculations, allowing for up to 50% more to be drawn down. UK income tax is also avoided.

Further information about QROPS:

History of QROPS, why were QROPS created?

Benefits of taking out a QROPS for ex-pat residents

The most frequently asked questions in reference to QROPS

How long does it take to set up a QROPS

What are QROPS?

QROPS jurisdictions. Where can QROPS be based?

Talk to us about your QROPS needs

The specific benefits of QROPS for those living in Spain include the following:

No UK tax on pension income (up to 50% in the UK)

No death charges of up to 55% as in the UK

Beneficiaries are nominated when a QROPS is set up, and no IHT is charged on remaining funds transferred to family members after death.

30% lump sum payment (subject to 5-year residence period) (25% in the UK)

This is one of the most popular reasons for transferring UK pensions into a QROPS.

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Retirement age as of 50 (subject to 5-year residence period) for schemes under the jurisdiction of Malta (55 in the UK)

Avoid further changes to UK tax and pension legislation

Once your savings are in a QROPS they are safe from the changes in the UK rules. It is possible, for example, that QROPS themselves could be scrapped in future, or that the Lifetime Allowance could be lowered still further, but these changes cannot affect an already established QROPS.