When it comes to avoiding death tax charges, transferring your pension fund to a QROPS (Qualifying Recognised Overseas Pension Scheme) can offer potential benefits. If your pension remains in the UK and you pass away after the age of 75, your beneficiaries may face tax charges of up to 45% (for additional rate taxpayers) before receiving the remaining fund.
By moving your pension fund to a QROPS and nominating your spouse as the beneficiary, you can potentially maintain tax-efficient access to the pension income upon your death, provided there are no changes in tax residency. This means that your spouse can continue drawing the pension income in a tax-efficient manner.
However, it's important to consider the potential tax consequences if your spouse decides to collapse the QROPS scheme and receive a lump sum payment. Such actions can result in severe tax implications, and it is advisable to seek professional advice to fully understand the potential consequences in your specific situation.
If your beneficiaries are based in the UK, there are considerations related to UK Inheritance Tax. Upon your death, if you have been a non-UK resident for at least five complete tax years, the lump sum payment to your beneficiaries is generally expected to be free of UK Inheritance Tax.
It is essential to consult with qualified financial advisors or pension specialists who have expertise in international pension transfers and tax planning. They can guide you through the implications of switching to a QROPS, help you understand the potential tax advantages and disadvantages, and ensure you make informed decisions that align with your goals and circumstances.
In summary, transferring your UK pensions to a QROPS can potentially help you mitigate death tax charges. By nominating your spouse as the beneficiary, you may be able to maintain tax-efficient access to the pension income. However, collapsing the QROPS scheme for a lump sum payment can have significant tax consequences. Considerations related to UK Inheritance Tax also apply. Seeking professional advice is crucial to understanding the implications and making informed decisions regarding your pension planning and potential tax savings.