QROPS – UK Pension Transfers to Canada
A QROPS is a Qualified Recognized Overseas Pension Scheme and the ONLY vehicle for which a UK Pension should be transferred into Canada. As of writing this, there are just two companies in Canada that are approved by the UK Government as able to open and maintain QROPS accounts. These are IA Clarington and IAG. This is a big deal if you already living in Canada or considering moving here and want to access your UK Pension! Note: A transfer to a ROPS that is not qualified, is an unauthorized payment and may be levied up to a 40% tax charge.
- Consolidate your investments into your home country
- Lock in the exchange rate of your pension assets
- Known income stream and potential for higher income
- Flexibility as the funds are within a regular RRSP and not locked in
- Greater investment choices
- Ease of Estate administration
Who are QROPS’ for?
- Anyone that holds a UK pension scheme who is a Canadian resident taxpayer and intends to be for a minimum of 5 years
- Client must be 55 years of age or older to open a QROPS account
- Defined Benefit Pensions greater than £30,000 will require the review and signoff of a UK financial advisor.
- Public Sector (including National Health Service, Teachers, Civil Service) pensions may NOT be transferred outside of the UK
What is required to initiate a QROPS transfer?
- Clients must initiate the process by notifying their former UK pension company they wish to transfer funds to Canada
- IA Clarington/IAG will require the following documents:
- Original termination/transfer forms from UK Pension administrator signed by the client (these documents vary among each pension administrator and should be obtained directly from them)
- HM Revenue & Customs QROPS Member Information APSS263 form
- UK Pension transfer application form
- UK Pension Plan client statements
- IA Clarington or IAG application form
- Once IA Clarington/IAG receives all the forms in good order, they will complete and send to the UK pension to initiate the transfer
Important information regarding QROPS transfers
- Mutual Funds are currently the only available option (no Segregated Funds)
- A QROPS can only be set up as RRSP accounts; client must be 55 years of age or older to open a QROPS account **NEW RULE since these have been allowed again in Canada**
- The UK minimum pension age of 55 applies before benefits can be taken, however, QROPS arrangements can offer considerably more flexibility, greater income potential and more investment freedom than a UK pension
- Funds for these transfers will likely be received in British Pounds; if this is the case, IA Clarington/IAG will convert the money to Canadian dollars using the exchange rate on the day the funds are deposited
- Funds will normally be sent via cheque, however, certain pension plans may request to send the funds via an electronic wire; this is permissible
- Funds received from multiple UK pension companies can be deposited to the same QROPS account – there is no need to open multiple QROPS accounts
- Funds from UK pension transfers can take up to 3-6 months to arrive depending on the UK pension company
Important Information on Taxation
- All withdrawals made within 10 years of the original transfer date are reported back to HMRC (UK tax year end is April 5th)
- Withdrawals made by clients within 5 years of them ceasing to be a UK resident may be subject to UK taxation
- As with any RRSP, Canadian withholding taxes are applied when money is withdrawn from the account and the withdrawal amount is added to the client’s income for that year
- If payments in the reporting period are considered “unauthorized payments,” they would be subject to U.K. tax charges and possible penalties. HMRC will review the nature of the transfer and/or withdrawal and determine whether a 40% unauthorized payments charge and possible additional 15% surcharge will apply.
Example: A client in 2019 who has resided in Canada since 2017 withdraws $5,000 from their account. This withdrawal would be considered an unauthorized payment, as it occurred within the five year reporting period.
Please note: Had the same withdrawal been made by a client who has been away from the U.K. for more than five U.K. tax years, the withdrawal must be reported, but it would not incur tax charges from the HMRC.
- Transfers to QROPS’ will be taxed at a rate of 25% both the individual and the QROPS are in the same country after the transfer
- UK tax charges of 25% will apply to a tax-free transfer if, within five tax years, an individual becomes resident in another country so that the exemptions would not have applied to the transfer
Example: Mary is resident in Canada and transfers her pension savings under a registered pension scheme to a Canadian QROPS. Mary asked her scheme administrator to make the transfer on November 5th 2019 and the transfer was made to the Canadian scheme on December 11th 2019. At the time of the transfer it is not subject to the overseas transfer charge as Mary is resident in the same country as that in which the QROPS is established. The relevant period for this transfer runs until April 5 2025 (December 11 2019 to April 5 2020, plus April 6 2020 to April 5 2025). In May 2021 Mary becomes resident in Australia and ceases to be Canadian resident. As she is no longer resident in the same country as the QROPS, the overseas transfer charge now arises on her transfer.
This is a fantastic opportunity to get a hold of your hard earned assets and it may not last. Careful planning must be taken to ensure that the transfer does not give rise to unintended tax consequences. The UK worked hard to keep assets in their home country and cancelled this program in Canada in 2016. IA Clarington and IAG have been diligently working ever since and as of October 2019, the program has once again been approved. Let’s discuss your specific pension and how we can bring it to Canada for you. Contact Julie by email (email@example.com) or give the office a call.
For more information visit https://www.gov.uk/topic/business-tax/pension-scheme-administration