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Qualifying Recognised Overseas Pension Schemes

QROP Schemes are being offered as a miracle solution to pension planning for British nationals moving abroad, but are they? writes Virginie Deflassieux.

Although QROPS are very attractive from a UK tax point of view (after five years of non-UK residence) and offer greater flexibility compared with traditional schemes, we advise anyone considering this vehicle to seek formal advice and to err on the side of caution.

Indeed, to date and to the best of our knowledge, there have been no formal opinions or guidelines provided by the French authorities on the exact French tax treatment of QROPS.

For instance, it is not certain even that they would be treated as pensions or that the fund would benefit from any wealth tax or inheritance tax exemption in the same way as a qualifying French professional pension.

Enthusiasm for these schemes based solely on the UK tax advantages could lead to a nasty surprise later on when the pension is drawn, lump sum taken out, or when the residual fund transfers to designated beneficiaries upon death.

Some well-established providers are looking into the matter and are refraining to offer such products until such time as they can clarify the treatment to individuals who plan to be living in France while drawing benefits from a QROPS.

Logically, the French authorities are more likely to consider favourably an EU scheme or one registered in a double tax treaty partner country.

Below are a few questions which we believe are crucial for anyone considering a QROPS arrangement as part of their French tax planning:

  • Will the existing scheme rules facilitate the transfer of the funds to a scheme in another jurisdiction?

  • If the transfer is to take place after French residence is taken up, what is the tax treatment of the transfer?

  • What will be the French tax treatment of pension benefits received whilst resident in France?

  • What will be the French tax treatment of lump sums received whilst resident in France?

  • What will be the French tax treatment of residual capital for wealth tax, inheritance and gifts tax purposes?

If the provider has asked for clarification on the treatment they should be able to provide a copy of the advice or tax authority's opinion in the beneficiary’s country of residence.

You can contact Virginie Deflassieux at french.tax@pkfguernsey.com.

This article was featured in our Newsletter dated 18/05/2010

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