QROPS stands for “Qualifying Recognised Overseas Pension Scheme” and simply put, it is a pension scheme based in another country which is recognised by the UK’s HM Revenue and Customs (HMRC) and broadly similar to a UK-registered pension scheme and can receive transfers from registered pension schemes without an immediate tax charge being incurred.
Many UK expats in France have long taken an interest in these overseas schemes. QROPS can be particularly attractive to those with relatively large pension pots, typically £100,000 or above, or to those in complex financial situations.
The strategic appeal of a QROPS lies in tax planning, estate structuring, and currency control. In short, these schemes can make possible a level of flexibility that UK pensions do not always offer.
However, it is crucial to recognise that QROPS transfers are complex and require personalised cross-border advice. It is very far from a “DIY” process, which is why it is vital to seek professional advice on the subject.
We have previously written here at Kentingtons about the various issues associated with QROPS, which explains why we have never recommended these schemes. Indeed, one might even go as far as regarding the market for QROPS as dead since the UK’s decision to apply the 25% overseas transfer charge (OTC) for residents of the European Union (EU).
So, do the reasons to avoid these schemes now outnumber the reasons to consider them? Below, I have outlined some of the key factors to take into account.
Is a QROPS still relevant after Brexit?
The UK’s departure from the EU has indeed reshaped the landscape for pension transfers. While Brexit did not cause QROPS transfers to EU jurisdictions to be outlawed, the rules have tightened, particularly in relation to the OTC and residency requirements.
As mentioned in a previous article about QROPS, while HMRC maintains a list of schemes that satisfy its criteria to be a recognised overseas pension scheme, there are no registered QROPS in France shown on this list.
Some French schemes were once HMRC-approved. However, in 2016, HMRC removed all French PERPs (Plan d’épargne Retraite Populaire) from the official list because they did not comply with the required UK pension rules.
So, with France not being represented among the HMRC-approved options, UK expats do not currently have the option of transferring directly into a French pension scheme that is actually recognised as a QROPS.
As an alternative, some expats have looked to other EU-based QROPS schemes, such as those in Malta or Ireland. Although transfers to such schemes are still possible, the tax recognition and reporting requirements are now more stringent.
EU residency is now a critical factor with QROPS, as it affects whether a transfer avoids penalties like the OTC. In fact, to avoid the 25% charge, it is now necessary to live in the same country where the QROPS is based at the point of transfer.
Long-term residency planning is essential because if an individual changes their country of residence after making a QROPS transfer, it could retrospectively nullify exemptions and trigger unexpected penalties.
What are the French tax implications of a QROPS transfer?
With QROPS pension income being treated in France as foreign pension income, it is subject to both French income tax (impôt sur le revenu) and social charges (prélèvements sociaux). A flat rate of 7.5% may apply to lump-sum withdrawals if structured correctly under the UK-France double tax treaty.
Indeed, UK expats in France need to be mindful of the role of this treaty, as misunderstandings can lead to errors like double taxation or a failure to claim relief. A poorly structured QROPS can lead to unnecessary tax liabilities, especially if the scheme is not HMRC-recognised or if withdrawals don’t adhere to French tax rules.
As always, here at Kentingtons, we emphasise the importance of seeking professional and tailored advice to help optimise tax efficiency.
What is the overseas transfer charge (OTC) – and when does it apply?
The overseas transfer charge, or “OTC”, is a 25% tax charge, levied by HMRC, that has applied to certain transfers to and from a QROPS since 9th March 2017.
This charge is applicable unless certain exemptions are met, such as a transfer being made to a QROPS in the EU. At the same time, the individual is an EU resident or is part of a scheme in the same country as the individual’s residence.
If a change in residency occurs after a transfer, such as the given expat moving out of the EU within five years, this can retrospectively trigger the OTC. This can potentially derail relocation or inheritance strategies, so long-term residency planning is critical.
How does a QROPS compare with keeping your UK pension?
Here is a quick rundown of the pros and cons of retaining a UK pension while resident in France:
- Retaining a UK pension – A UK expat choosing to keep hold of their UK pension can benefit from their scheme being regulated by the UK Financial Conduct Authority (FCA), potential protection from the Financial Services Compensation Scheme (FSCS), and access to The Pensions Ombudsman. They can also have the peace of mind that comes with a familiar structure and no transfer costs.But on the other hand, UK tax may apply on death after the age of 75, and with UK pensions often being paid in pounds, there is limited currency flexibility. Plus, by its very nature, the retention of a UK pension isn’t a solution automatically tailored to French tax and estate laws.
- Transferring to a QROPS – Taking the QROPS route could give a UK expat in France greater control over their investments, enhanced currency flexibility (such as Euro-based withdrawals) and potential tax and estate planning benefits.But on the other hand, transferring to a QROPS can mean transfer costs, ongoing fees, and compliance obligations, as well as the loss of some UK protections.
- Other Options – There are other options to consider, such as cashing in UK pensions, with the potential to pay as little as 6.75% (7.5% after a 10% allowance). Imagine the HMRC giving you that option! There are also international SIPPs, which are pensions that fall under UK rules, but give you the advantage of flexible management and currency choice.The decision any given expat ultimately makes —whether to retain their UK pension, transfer to a QROPS, or choose other options —will depend on their individual goals, age, domicile, and financial circumstances.By conducting a thorough review of their situation with the help of a cross-border adviser, the expat will be best-placed to make a confident and informed choice.
What are the most common pitfalls when transferring a pension to a QROPS?
Below are some of the classic drawbacks and mistakes that can occur when it comes to QROPS transfers made by UK expats in France:
- Transferring without first securing French tax advice: the individual’s liabilities could end up being higher than they need to be, if they don’t adequately account for French income tax or social charges.
- That it is deemed a pot of money in trust, and the French apply a penalty tax of 60% of the value! (yes, that is not a typo … more than half of your life savings could vanish in an instant!)
- Failing to consider future residence: if the expat moves outside of the EU after making a QROPS transfer, this could trigger the OTC.
- Using an unregulated adviser or scheme not aligned with personal goals: an expat placing their trust in an unqualified or misaligned adviser could mean schemes are recommended to them that are not suitable for their situation and needs.
- Overestimating the benefits vs the cost and compliance obligations: if an individual has a relatively small pension, high fees or compliance costs could outweigh any advantages a QROPS is likely to bring them.
When might a QROPS not be the right option?
To reiterate: here at Kentingtons, the range of potential issues with QROPS schemes means we do not recommend them, and we never have.
Indeed, there are certain circumstances in which the costs and disadvantages of QROPS may be particularly high compared to any likely benefits. These include situations involving smaller pensions, such as those below £100,000. Plus, there are non-transferable pensions, such as public sector or final salary schemes, that cannot be moved.
For expats in France who intend to return to the UK at some point, it may be a more straightforward and cost-effective course of action to retain a UK pension instead.
In the case of any given expat, a financial adviser can help them assess whether a QROPS would be the right match for their situation and expectations.
What’s the process of making a QROPS transfer, and how long does it take?
It typically takes around four to six months to make a QROPS transfer, although a longer timeline may apply to complex cases.
The basic steps of this process are:
- A comprehensive financial review and goal setting: any UK expat in France must have the utmost confidence in a QROPS transfer being the right decision in light of their financial circumstances and longer-term aspirations.
- Getting suitability advice from a cross-border specialist: a qualified professional can further help the given individual to establish the best possible course of action.
- Selecting a QROPS provider that is HMRC-recognised and aligned with one’s residency: unfortunately, as I mentioned earlier, there is not presently a HMRC-recognised QROPS based in France. So, the given expat may need to get imaginative when seeking out appropriate solutions or alternatives.
- Obtaining HMRC approval and the completion of transfer formalities.
Whatever course of action the individual takes, it will be critically important for them to ensure compliance with both UK and French reporting requirements. Ongoing obligations will include such steps as annual statements and tax declarations.
Final Thoughts: Is a QROPS right for you, or is there a better option?
Indeed, QROPS schemes have historically offered significant advantages for UK expats in France, including tax planning, estate planning flexibility, and currency control.
However, even these powerful benefits are only accessible in specific cases. What’s more, with the OTC now being levied on so many transfers to QROPS, many UK expats in France have increasingly been concluding that QROPS schemes are unsuitable for their needs.
As always with matters as complicated as this, there is no single, “one-size-fits-all” answer to the question of what arrangements will best suit the circumstances and requirements of a particular UK national living in France.
In the process of making your own decision, you can expect to need a holistic approach, integrating your pension planning with residency, taxation, and estate goals.
Indeed, our team here at Kentingtons would strongly recommend that you speak with a qualified cross-border adviser before making any decisions. To receive professional and informed advice geared towards your situation, please reach out to us today.