Paying tax on pensions in the UK

Question: I have been working in Dubai for the past six years. I am considering retiring here but I am worried about paying UK tax on my existing pension. Are there any solutions to my problem?

ANSWER: An increasing number of expats decide to retire overseas but many are not aware of the options and opportunities for tax breaks and alternative pension schemes. At the moment there is no UAE state pension scheme for expatriates and most employers do not offer pension plans to their employees.

Gratuity payments, meanwhile, provide a welcome but relatively small end of service bene-fit. Therefore, it is up to you to make your own arrangements and plan for your future.

The good news is that there is a wide range of offshore pensions you can access. These schemes are operated in well-known, fiscally neutral offshore locations where high regulatory standards exist.

In addition, as you are considering retirement outside the UK, you may consider consolidating funds from any UK frozen or preserved pensions you may have into a single scheme.

This can have the added advantage of increasing your currency, investment and pension payment options together with the amount of your existing retirement fund that would pass to your family when you die.

At the same time it could reduce income tax liability and allow higher tax-free lump sums. If any of these points are important to you then it may be appropriate to consider transferring your UK pension(s) to a Qualifying Recognised Overseas Pension Schemes (QROPS).

Transferable plan

While most pensions are easily transferable, not all frozen or preserved pensions should be transferred. Expert independent advice is therefore essential, for example in relation to UK final salary schemes, or plans with guaranteed annuity rates or guaranteed minimum pensions.

Ideally, this should be in the form of a no obligation pensions benefits review, which your independent financial adviser can arrange. This will help you understand the jargon and guide you to the most suitable product and tax jurisdiction.

When a UK pension scheme or plan is to be moved to a QROPS, your UK provider will notify HM Revenue and Customs (HMRC) and the QROPS provider must report any pension payments made to you during the first five complete tax years following your departure from the UK. After you have completed five complete tax years of residency outside the UK, the reporting period disappears.

Applying the rules correctly, and ensuring they are not broken, is important as excessive charges can be incurred if the scheme is not set up and managed properly or if it does not conform to HMRC rules.

Previously, an individual had to be residing in the country to which they wanted to transfer their pension fund. However, this is no longer a requirement and people living overseas can now transfer their pensions to the jurisdiction that offers an appropriate fit to their requirements, which will include consideration of the tax implication.

The HMRC list of QROPS not only includes schemes from offshore centres such as the Isle of Man and Guernsey, but also schemes in Australia, New Zealand and Canada as well as some EU member countries.

Steady income

The purpose of a pension is to provide a steady stream of income, normally after you retire, so it is important your income does not run out before you do. Take advice from an independent financial adviser to make sure you are fully aware of all the options available to you. In this case it will help maximise tax efficiency and ensure that you have sufficient income to live on in your later years.

The writer is Commercial Director, Nexus Group. Opinion expressed here are the writer's won and do not reflect that of Gulf News. If you have any questions, please email to advice@gulfnews.com.