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bigduckontax, Accountant
Category: Tax
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I have been non-resident in the UK for a number of years.

Customer Question

I have been non-resident in the UK for a number of years. Some time ago I converted most of my UK pensions into a QROPS offshore fund. At that time I took a draw-down of 25% in accordance with the then prevailing regulations. This year the rules changed and it was possible for UK pension plan holders, if over the age of 55, to take all of their pension pot as a cash lump sum. If they did so, the 25% would be tax free but the remainder would be taxed at the rate of 55%.
I remain as a UK non-resident taxpayer. If I took the remaining balance of my pension pot (75%), would I be taxed at 55% or would I be subject to taxes in the country where I work (actually no taxes are applied on my income in that country) or would this drawdown be subject to 0% UK taxes.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Firstly, when you left these shores did you complete a Form P85 and send it to the Inland Revenue as it was then or HMRC which absorbed that Department about 5 years ago? If you did not you should do o immediately. Fortunately there is no time limit as to its submission, it is available on the web and can be filed on line. On receipt HMRC will classify you as non resident from your original departure date.

Regarding pension liberation over 55 which, as you are non resident will avoid UK taxation, the Pensions Advisort Service has the following stark warning:

'If I transfer my UK pension to a QROPS can I access my fund as a 100% lump sum?

This sounds as if it could be a pension liberation scheme. These are products designed to let you release your pension pot at an earlier age than normally allowed by HMRC (usually 55) or obtain more cash than you would normally be allowed. This is done by transferring your pension benefits away from the arrangement that currently holds them to a new one elsewhere. The new arrangement then makes your pension pot available as a cash payment back to you, either, directly, or indirectly via loans which you are notionally required to repay.

If you use a pension liberation plan, you would likely face significant deductions from the money transferred. These may be variously described as 'commission' or 'arrangement fees'. It is not uncommon that after these deductions have been made that only 70-80% of the original value is available. In addition you run the very real risk of HMRC imposing significant tax charges on you of up to 55% of the value of your pension, and perhaps other penalties.

But also by taking your benefits early, you are likely to be worse off in retirement as you would have less or even no pension left.'

I am so sorry to have to rain on your parade.

Customer: replied 1 year ago.
Dear *****
I am post 55 and did not transfer to a QROPS until after that age but I am not sure if your comments about a 'pension liberation scheme' would apply. I do not anticipate any commission or arrangement fees. This QROPS is HMRC registered, as it has to be.My question though is about the UK tax position on the remaining un-drawn down pension pot. Would this be subject to the 55% tax that applies to UK resident taxpayers, given that I am a non-resident tax payer?
Expert:  bigduckontax replied 1 year ago.

My original response regarding taxation was:

'Regarding pension liberation over 55 which, as you are non resident will avoid UK taxation'

The comments from the Pensions Advisory Service were merely a warning as to what might happen on pension liberation. Many similar questions on Just Answer in the past have revealed liberators with virtually nothing left after deduction of charges and commission.