Transferring your UK Pension to a QROPS: Retiring to France

The QROPS or Qualifying Recognised Overseas Pension Scheme was set up in 2006 in order to meet the EU requirements of freedom of capital movement. Essentially, this allows UK pension holders to transfer their pension fund to an overseas scheme.

QROPS are unique in that they satisfy criteria set by HMRC (Her Majesty’s Revenue and Customs) in the UK, allowing pension holders to transfer their pension tax-free and without transfer fees (providing you meet certain requirements – see below).

Any registered overseas pension scheme can apply to be a QROPS, and in doing so, they agree to implement UK pension restrictions for the first five years. The HMRC publishes a list of QROPS here (although not every registered QROPS appears on the list), and this is a good place to start. Note that there currently aren’t any registered QROPS in France, so French residents will need to choose a QROPS scheme in another European Union (EU) or European Economic Area (EEA) country.

British expatriates have the option to transfer most workplace and private pensions into a QROPS. In many cases, these transfers are free from taxes and transfer fees; however, there are some important criteria that you must meet.

Avoiding the 25% QROPS tax

Since 2017, UK tax charges of 25% have been applicable to QROPS transfers. Thankfully, there are some ways around this for French residents.

The aforementioned 25% tax is waived if:

• You are transferring your pension savings into a QROPS in the same country in which you are resident. For example, you are tax resident in France, and you transfer to a QROPS in France.

Hold on – didn’t we just tell you that there aren’t currently any registered QROPS in France? Don’t worry; the 25% tax is also not applied if:

• You are resident in an EU or EEA country, and you transfer your pension fund to a QROPS in another EU/EEA country. For example, you are tax resident in France, and you transfer to a QROPS in Spain or Malta.

AND/OR

• You transfer your pension to your employer’s occupational pension scheme.

The QROPS five-year rule

The aforementioned tax is subject to another condition: once you have transferred your pension to a QROPS, you must remain resident in the EU for a minimum of five years (five consecutive tax years)*. During these five years, your pension fund may still be subject to UK pension taxes and legislation if you break any of the following rules:

• You return to the UK, move to a different country or, for pension holder’s resident in an EU country, move outside of the EU/EEA.
• You withdraw funds from your pension before the age of 55 (the UK’s minimum retirement age).
• You make a subsequent transfer to a non-QROPS pension scheme.
• You take a lump sum from your pension greater than 30% (the maximum tax-free allowance for a QROPS in the EU).

In any of these cases, the 25% transfer fee will be deducted, and you may also be subject to further taxes. Breaching the minimum withdrawal age, for example, could see your tax bill reach 45%, plus an additional 15% surcharge – that’s a whopping 55%, and it could have long term implications on your available pension fund.

After the five-year period has lapsed, your pension will no longer fall under UK jurisdiction. Instead, it will be subject to the jurisdiction of the country in which your QROPS is held, as well as any tax or pension rules in your country of residence. For example, if you hold a QROPS in Malta and are resident in France, the rules of both countries would apply to your pension.

This is one reason why it’s essential to seek professional advice and understand exactly what you will and won’t be able to do regarding your pension fund before you choose to transfer it to a QROPS.

One final thing to note is that when you move your pension to a QROPS, the QROPS agrees to report any payments or changes to your pension account to the HRMC for a 10-year period after the transfer date. This means that the British tax authorities still have the right to track your pension payments for a further five years, even though they cannot apply taxes or fees outside of this period.

* Note that different rules apply to pensions transferred into a QROPS before March 9 2017.

Prior to Brexit, the big concern was that the UK may impose the 25% transfer fee on QROPS transfers within the EU. However, the UK’s 2021 budget did not include any changes to QROPS, and there are currently no proposed changes to the current QROPS regulations post-Brexit.

This means that if you move to France, transfer your pension to a QROPS based in an EU or EEA jurisdiction, and remain resident in the EU for a minimum of five years; you will not be subject to the 25% tax.

However, it is important to point out that, being as the UK has now left the EU, they are no longer obliged to follow the European rules regarding freedom of capital movement. Therefore, it remains a possibility that the current tax-free transfers for EU residents could be changed in the future.

What happens to my QROPS if I move back to the UK?

If you transfer your pension to a QROPS when moving or retiring to France but later decide to move back to the UK, there are two options available to you. You can simply keep your funds in your QROPS and continue to draw on your personal pension fund.

Alternatively, it is also possible to repatriate a QROPS to a UK pension scheme such as a SIPP (Self-Invested Personal). If you are moving permanently back to the UK, this may be the best option, as there are few benefits to holding a QROPS when resident in the UK.

There may be tax implications if you return to the UK before the five-year point, and in this instance, it’s a good idea to seek professional advice before making the move.

There are several pros and cons to moving your pension fund to a QROPS, and there is no one-size-fits-all answer. It’s important to consider your personal situation both now and in the future before deciding whether a QROPS is for you, and it’s worth seeking professional advice before making a decision. Our list of financial and tax advisors is a good place to start.

Benefits of transferring your pension to a QROPS

• Transferring your pension to a euro fund means no more transfer fees or fluctuations in currency exchange rates.
• Holding an EU pension fund means you can take advantage of tax-efficient investment options beyond the UK.
• There are estate planning benefits, such as the flexibility to include additional hiers.
• Tax liability at death can be reduced and sometimes removed entirely with a QROPS.
• You may be able to withdraw a lump sum of up to 30% with a QROPS-approved scheme (in the UK, it is capped at 25%).

Potential pitfalls: things to watch out for when considering a QROPS

• If your move to France is likely to be temporary, the tax risk may not be worth it.
• If you choose to withdraw a lump sum of up to 30% while resident in France, it will still be subject to French tax – a better option might be to withdraw a 25% lump-sum tax-free while still resident in the UK.
• Pension scams and unregulated investments often target expats – be sure to do your research and choose a reputable and registered QROPS.
• French tax on pensions and social charges can be quite high, depending on your personal circumstances. Sometimes, reinvesting pension funds in an Assurance Vie policy can be a more tax-efficient option than a QROPS.

From applying for residency and understanding your pension options, to life in France for the over 60s – FrenchEntrée is here to help! Let our Essential Reading articles guide you through the whole process, then visit our French Tax, Healthcare, Wills & French Inheritance, and Life in France zones for everything else you need to know.