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What is QROPS Five Year Rule


Completed Five Full Tax Years - 30% Withdrawal

When people talk about the five year rule they are referring to the length of time the member has been resident outside of the UK for tax purposes. This is measured in tax years (and not calendar years).

The five year rule is important because it determines when QROPS benefits can be taken. During the first five years, retirement benefits must mirror those available in the UK, e.g. a pension commencement lump sum (often referred to as the tax-free cash) of 25%, and 55% tax on the value of a pension fund on death after retirement.

Once a pension scheme member has been a non-UK tax resident for five full tax years, if they transfer, or have already transferred to a QROPS this pension follows the rules of its jurisdiction. People who have completed the five full tax years can draw on up to 30% of their pension as a lump sum and will not be subject to any UK income tax, tax on death after retirement, and access the whole host of other benefits that QROPS offers.

Because life expectancy has increased, more and more people spend a quarter, or even a third of their lives in retirement. That means for many individuals, retiring overseas can be quite possibly, the holiday of a lifetime.

When you transfer your UK pension fund into a QROPS it means you can enjoy the best of both worlds – you can receive tax relief whilst saving for your retirement in the UK, at the same time as paying less, or no tax (depending on where to live and the jurisdiction you choose to take your QROPS from) and greater flexibility when the time comes to draw your benefits overseas.

As UK pension legislation changes and evolves over time, some schemes, or jurisdictions have been delisted by HMRC for not following QROPS rules – they are now classed as non-qualifying. Before you commit to transferring to an overseas pension scheme, you need to ensure that you consult with qualified pension advisor who can give comprehensive advice about the rules for where you intend to retire and which QROPS jurisdictions qualifies you for the best possible benefits.

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