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QROPS and SIPPs – the facts – by Richard Samuels, Blacktower Financial Management

More and more lately I am being asked questions about QROPS and SIPPs and there seems to be a lot of misinformation being touted around, so here are the answers to the most common questions/queries people are coming to me with:

I have been told by a local financial adviser that if I do a SIPP with them it will be covered by the UK FCA and FSCS compensation scheme is that correct?

As long as your Spanish-based financial adviser is directly registered with and regulated by the UK FCA, then this is correct; but is very unlikely, the FCA states that:  If a company offering pensions advice is not authorised or regulated by the FCA – This means you may have no right to complain to the Financial Ombudsman Service or to claim compensation from the Financial Services Compensation Scheme if things go wrong.

Always check that anyone providing you with advice on your pension pot, who claims you will be covered by the FCA (FSCS), is authorised by the FCA and has their permission to give advice on pensions.  If they are, their individual name and company name will appear on the FCA register, which you can access through the FCA website (www.fca.org.uk).

If they have told you this, when in fact this is not the case, then steer clear.  Why are they making claims that are untrue?!!!

I am concerned that a financial adviser based in Spain I have been to see is recommending a product/bond based purely on its low cost.  Am I right to be concerned?

An experienced and professional financial adviser would never try to sell you a product/bond based solely on costs.  They would evaluate all the options available that meet your own personal needs and circumstances, discuss the options with you and then use the product that meets your needs, always bearing cost in mind.

I have been told I shouldn’t do a QROPS but I should do a SIPP.  If I do a QROPS will I be subject to a 25% UK tax charge?

Philip Hammond introduced the OTC (Overseas Transfer Charge) effective from 9th March 2017, which means certain transfers to and from a QROPS will be liable to a 25% tax charge. If the QROPS is outside the area that the member lives in, then the OTC applies, so if you live in the EEA and your pension provider is in the EEA, ie. Malta, then you are not liable for this tax. Also this tax is not applicable after the relevant 5 year period has expired.

So you may ask “What’s the problem?” Well, due to Brexit, this is a grey area.  If you move back to the UK within the 5 year period, will this tax apply or not? It depends on whether the UK decides it will or won’t be a member of the EU or EEA. If the UK decides not to be a member of either, then the OTC may apply (again a grey area). The UK could decide members moving back to the UK are exempt.

Are SIPPs subject to UK emergency tax on income payments which can be as high as 45%?

All SIPP income paid to you, including flexi-access drawdown, is subject to UK income tax under PAYE, so if you don’t have a UK tax code, an emergency tax code will be applied by HMRC.  This can be as high as 45%.

To avoid this you need to complete the following HMRC form; United Kingdom/Spain Double Taxation Convention (SI 1976 Number 1919) APPLICATION for relief at source from United Kingdom income tax and CLAIM to repayment of United Kingdom income tax – for use by an individual resident of Spain receiving pensions, purchased annuities, interest or royalties arising in the UK.

If at the end of the tax year you think you have paid too much tax to HMRC, you should claim a refund by writing to your local UK tax office.  If you live in Spain you will have to have proof that you have paid the appropriate tax on this income in Spain before you will get a refund.

If I do an SIPP and die after 75, my SIPP will be subject to up to a 45% UK death tax, whereas if I have a QROPS this is not the case?

This is currently true.  At the moment, the fund can be paid to any beneficiary, but will be taxed at their UK marginal tax rate as a lump sum, annuity or as a drawdown pension.  The fund can be paid to a trust as a lump sum less a 45% tax charge.

At the moment it is most probably better if you are in your mid to late 60’s or 70’s that you do a QROPS to avoid this potential tax for your beneficiaries.

If you have any subjects that you would like me to cover in future articles, or if you need advice or have any questions, please contact me by email richard.samuels@blacktowerfm.com or call me on 692 352 156.

Blacktower Financial Management Ltd has been established for over 32 years and have worked with clients through the good and the bad times, offering sound independent advice.  We will be by your side both now and in the future.

The above information was correct at the time of preparation and does not constitute investment advice.  You should seek advice from a professional adviser before embarking on any financial planning activity.

Blacktower Financial Management Ltd is authorised and regulated in the UK by the Financial Conduct Authority and is registered with both the DGS and CNMV. Blacktower Financial Management (Int) Ltd is licensed in Gibraltar by the Financial Services Commission (FSC) and is registered with both the DGS and CNMV in Spain.