The Canadian Expat’s Definitive Guide to QROPS

Canada is currently welcoming thousands of British expats with open arms as it struggles to cover its own labour needs. While a new life in such a beautiful country will no doubt be very enticing, many people are not thinking ahead when it comes to planning for their retirement. British pension funds will still be at the mercy of HMRC – even if the fund-holder lives in Canada permanently. In order to protect a pension from unnecessary taxation, a QROPS pension transfer is often required. Although this course of action is not without its own potential pitfalls, it will deliver a number of financial benefits for British retirees living in Canada.

The Advantages of Transferring a UK Pension into an Approved Offshore Scheme

People who are living in Canada have the option of transferring their existing UK pension into any QROPS pension scheme that has been formally recognised by HMRC. Canada has specific rules on such transfers, and it may often be prudent for certain people to use a Canadian-based QROPS scheme. Among the many advantages of a Qualifying Recognised Overseas Pension Scheme is the fact that the funds they contain are subject to very low rates of income tax, and in some cases inheritance tax can be avoided completely. It could also be possible to completely remove the burden of UK capital gains tax, increase international investment options and, in some cases, escape UK income tax.

The Rules in Canada

British expats living permanently in Canada will be given the option of transferring their occupational pension funds into a Canadian Registered Savings Plan (RRSP). However, only those schemes specifically endorsed by HMRC will be eligible for such a transfer. The advantages of a Canadian RRSP include the avoidance of inheritance tax – which can be as much as 55%! There is also the chance to take a lump sum of 30% as well as having a retirement income paid in Canadian dollars. Many retirees complain that currency fluctuations are a great cause of concern, so the idea of removing those concerns permanently is a particularly attractive one.

Arrangements for Those with Private Pensions

Unfortunately, those with private pensions will not be able to transfer their funds to an RRSP scheme in Canada, but they can still use an offshore provider. Malta and the Isle of Man in particular provide beneficial terms to expats living in the country, but a financial advisor should be consulted to ensure that the scheme is right for the individual’s needs. Unfortunately, both jurisdictions have a double tax agreement in place with Canada, so permanent residents in the country – those who spend at least 183 days there – will probably be liable for Canadian income tax.

It is worth pointing out that the rules changed with regard to this type of offshore pension in 2012. The government was concerned that the rules were being bent so that expats could cash in 100% of their pension funds – instead of using it to provide a steady income. As a result, many schemes were removed from the list of approved HMRC providers, and there are now tougher regulations on those schemes which retained their status. Retiring to Canada should be a joyful time, and it can be if people take the necessary financial advice to protect their UK pension funds.

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