QROPS Quandary

PKO7375 · May 2021

Hello Paraplanners,

I'm hoping there might be a QROPS expert in here, or somebody who knows more than I do, or can point me to someone who does.

We have a client, who is a UK resident (always has been) and holds a Maltese QROPS. It was recommended to him by another firm in 2012 based on the old 55% death tax regime, with the QROPS seen as more tax efficient than a UK registered scheme at the time. The rationale being that under UK legislation, a pension could only be passed on tax free before age 75 if it were untouched, or post 75 as an income to a spouse or dependent under 23 years of age. Lump sum death benefits post-75 or drawdown funds pre-75, were subject to a 55% death tax charge. Whereas in a QROPS the 55% charge would only apply to the value of the fund at the point of transfer and therefore any growth post-transfer would not be subject to the 55% tax charge. The tax charge would effectively be frozen at 55% of the transferred crystallised fund value. Great if the client was accruing rental income within the scheme like this one.

Then UK tax legislation changed in 2015 and the 55% death tax was abolished. Not an ideal recommendation in hindsight, tax tail, dog and all that. But we are where we are.

From what I've read, given that the fact the the QROPS fund is fully crystallised, we would struggle to fund a UK registered pension scheme that would accept a transfer in from the QROPS?

I'm trying to establish the death benefit tax position, post 2015. From what I've read among provider literature (OMW etc), for a UK resident, the taxation of death benefits is now the same within a QROPS as for a UK pension scheme (i.e. on death pre-75 tax free within 2 years, post 75, taxable at beneficiary marginal rate).

Yet the QROPs provider is saying:
Pre-75 - Lump sum taxable as employment income if it exceeds the Relevant Transfer Fund (i.e the amount transferred in in 2012), otherwise tax-free.
Post age 75:

Any of relevant transfer fund not withdrawn during lifetime will be taxable as pension income.
Growth up to value of relevant transfer fund is tax-free.
Growth in excess of relevant transfer fund is subject to income tax

If anyone has come across this before or knows anything about it, I'd welcome any insight!

Thanks in advance.

Pippa