Two Retirement Options for Resident Ex-Pats in the United Arab Emirates
If you are going to retire in the United Arab Emirates, or are planning on remaining in the UAE for an extended period of time, as an ex-pat it’s a good idea to know your UK Pension Transfer options.
As a UAE resident, you don’t pay tax on pension income. That’s why many UAE residents want to better understand what the options are in relation to their UK pensions.
Transferring Your UK Pension to a QROPS in the UAE
QROPS stands for Qualifying Recognised Overseas Pension Scheme.
It is a pension investment scheme established outside of the UK but approved by the HM Revenue and Customs (HRMC).
There are no authorised providers in the UAE, but you can still transfer your pension to a country on the ROPS list. Then as a tax resident, you can take advantage of the UAE income tax-free benefits. Please note though that as a UAE tax resident you’ll be liable for the Overseas Transfer Charge. It is a hefty 25%. If you wish to avoid this charge you need to look at alternative UK Pension Transfer options, most notably International SIPP arrangements (discussed further below).
To take full advantage of QROPS benefits you need to have been living outside the UK for five years or more. For example, you can take up to 30% as a lump sum if you have been an overseas resident for over 5-years. If it is less than 5-years then it remains at the standard 25%.
An advantage to making use of QROPS is that you can choose to invest in different currencies. This could be helpful if you don’t wish to continue to be exposed to GBP, especially if you’re likely to retire outside of the UK. Other advantages include your beneficiaries getting the whole of your pension pot free of UK tax if you die after the age of 75. Whilst a UK pension can provide tax free benefits before death at age 75, if the pension holder dies after the age of 75 their beneficiaries are taxed at their marginal rate.
If your circumstances change and you decide to move back to the UK you can keep your pension in QROPS, however, as a UK resident, you will be bound by UK legislation and taxes. Most notably this could mean that if death occurs after the age of 75, your beneficiaries may be then taxed at their marginal rate when they receive your fund. Also, Brexit may well introduce changes to the way in which HMRC treats QROPS arrangements. The rules and regulations regarding a return to the UK can be complex which is why we recommend that you should always take financial advice from a fully qualified financial professional when considering any pension transfer (ideally a Chartered Financial Planner)– especially when moving from a Defined Benefit (Final Salary) scheme to a QROPS or SIPP arrangement.
Main QROPS Benefits
- A tax-free lump sum (up to 30%)
- Flexible currency investment choices
- Death benefits preferable beyond age 75
If you don’t want to transfer your UK pension offshore then there is another option – an International SIPP.
Transferring your UK Pension to an International SIPP in the UAE
SIPP stands for Self-Invested Personal Pension. It is a UK pension plan designed for people who want more flexibility and control over their pension investments.
SIPPs give you a wider choice of investment options including overseas stocks and shares and Exchange Traded Funds (ETFs) and you can combine all of your pensions and have them in one place.
An International SIPP is, essentially, the same as a UK SIPP. It is marketed as an international scheme to ex-pats who live outside of the UK and thus there is no issue with managing the SIPP when non-UK resident. It is, therefore, also marketed to tax residents of the United Arab Emirates. The costs and charges to open a UK SIPP should be the same whether you are an ex-pat or not.
Like UK residents, ex-pats can withdraw 25% of their pension free of UK tax. The rest (75%) will be taxable in the country where they live.
For example, the UK and Spain have a double taxation agreement. Residents of Spain have to pay the tax on their pensions in Spain, not in the UK.
The UAE also has a double taxation agreement with the UK. But, in the UAE there aren’t any tax charges on personal income. This means you will get the whole of your pension tax-free as long as you are a tax resident of the UAE at the point of drawing benefits.
SIPPs are regulated by the UK Financial Conduct Authority and UK rules apply. One of those rules is that you can only withdraw your funds in GBP. However, you can still choose to denominate the underlying investments in an alternative currency should you wish to remove currency risk.
If you decide to return to the UK your International SIPP tax status doesn’t change (it’s just a UK SIPP) thus there isn’t any worry concerning potential future transfer charges.
Main SIPP Benefits
- Your pension is regulated by the UK Financial Conduct Authority
- Tax-free pension pot
- Wider investment selection
- Flexibility of access
If you are a tax resident in the UAE with a UK pension talk to a financial professional. AES International is an award-winning financial services firm providing financial planning and pension transfer advice to thousands of expatriates and internationals, worldwide.
Contact us today for a fee free initial meeting.