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European Legislation, Taxes & Schemes

European legislation and competition from regulatory jurisdictions outside of the UK are making HMRC’s grip on pension assets seem increasingly weak. For people who plan ahead, there could be quite clear advantages relating to larger tax free cash entitlements from their pension funds along with lower income tax rates. Once someone has lived out of the UK for 5 years then there are no reporting requirements needed to the UK about their pension funds and there are significant capital gains tax advantages. The Isle of Man is removing its requirements that pensions be used to buy an income at aged 75. Residual funds on death after aged 75 will be taxed at 7.5% in the Isle of Man rather than the punitive 82% on those alternatively secured pensions in the UK. Tax free cash is likely to be 30% of the total fund rather than 25% in the UK. Pension income will be subject to 18% local tax when they are in payment. Offshore institutions are not aggressively after UK pension assets presently- but they will be in the next few years- especially Brits looking at moving Abroad of which there are at least 16 million.

Special schemes called QROPS ( Qualifying Recognized Overseas Pension Schemes) have been introduced and officially recognized by the taxman. The advantage of transferring a UK pension into a QROPS is clear. If you are non resident in the UK for at least 5 complete tax years ( or know that you will be ) your UK pension funds can be transferred without tax deduction and ultimately drawn without UK tax consequence once the 5 year period is up. As this is a relatively new area of expatriate pension planning it follows that a certain level of caution should be exercised. Therefore it seems prudent to leave the funds in the QROPS for 5 whole years and then withdraw whilst non-resident. You have to take into account local tax requirements which is why it is essential to take professional advice relating to your chosen country of residence.

Brits who emigrate should consider moving their pension assets into overseas schemes because they will now not be subject to inheritance tax, after the Budget in March 2008 set out plans to restore IHT protection to savings in overseas pension schemes. This is good news for people who retire abroad and take their pension pot with them. Expats naturally want to take their pension pots with them to get access to benefit rules abroad , for example, Australia which allows you to take your pension pot as lump sum. At least 500,000 pensioners in the UK pay higher rate 40% tax and 3.6 million working British people pay the higher rate. Of an estimated total UK population of 12.2 million pensioners in 2010; 9.8% are predicted to leave the country to spend their retirement abroad. By 2012 there will be around 800,000 people approaching aged 65 and generally they will be asset rich and pension poor- with their asset being a UK property they have been paying interest on for over 30 years. It is these particular types of people that will be looking at selling up and moving out of the UK. 10% of the UK population could retire abroad by 2020, which is a considerable portion of the at retirement market. The proportion of the population aged 65 and over is projected to increase from 16% currently (11 million) to around 22% (15 million) by 2031. These people will have insufficient pension funds to live comfortably in the UK for example but do not want to reduce their lifestyle. The state system in the UK is already at breaking point and by 2020 it will be seriously underfunded due to the ratio of workers to retired people. The UK government are actually predicting that most people will need to work until they die because of the above problems. Nearly all of the 39% of the 360,000 people that went into UK private residential care in 2007 sold their own homes to pay for it. The bottom line is that most retired people in the UK that go into LTC- lose most or all of their assets due to spiralling LTC costs. Emigration is the obvious choice with better quality care.

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