QROPS, wealth and income tax implications

Information and questions about the Law in Spain and Andalucia.
dylan7
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QROPS, wealth and income tax implications

Postby dylan7 » Wed Mar 28, 2018 3:08 pm

Hi, I am a 56 year old UK tax resident with a defined contribution pension fund built up whilst I was working for a large company, partly from their contributions and partly from AVC's. Before becoming a Spanish tax resident I would like to consider the income tax and wealth tax implications for my pension fund and pension. Assume that my wealth tax allowances are already used up. My UK financial advisor has suggested that I transfer the fund into a QROPS. My questions are simply:

1. If I don't transfer into a QROPS, would the fund asset be included in my wealth tax calculation?
2. If I don't transfer into a QROPS, would the pension be taxed as income or could it possibly be treated as an annuity?
3. If I do transfer into a QROPS, would the fund asset be included in my wealth tax calculation?
4. If I do transfer into a QROPS, would the pension be taxed as income or could it possibly be treated as an annuity?

In summary, what is the difference between the wealth tax and income tax treatment of a standard DC pension fund versus a QROPS?

It has been surprisingly difficult to find someone with a definitive answer to these questions, so I would very much appreciate it if someone could help.

Thanks, Dylan

katy
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Re: QROPS, wealth and income tax implications

Postby katy » Wed Mar 28, 2018 3:29 pm

I would do a search on here about QROPS, also on google where many, some of them in Spain have lost their pension pots to dodgy schemes. I wouldn't touch them with a bargepole. Look at the charges too.

Lavanda
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Re: QROPS, wealth and income tax implications

Postby Lavanda » Thu Mar 29, 2018 7:31 am

My OH moved his SIPP to QROPS about 10 years ago. Having a QROPS managed by a fund manager is not a passive activity and you would be expected to make decisions about the levels of risk you want to take with what percentage of the QROPS and what you want to keep in cash. You will also need to make decisions about how often you want to take an income or whether, at times, it's best not to do so to build up the fund.

There are a lot of extremely poor fund managers out there but there are also some excellent ones. Although the fees can be high for what they do — considering your own part in the activities — the money your fund makes should more than cover them. This has been the case with my OH's QROPS.

It was declared on the 720 and is taxed as an annuity.

dylan7
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Re: QROPS, wealth and income tax implications

Postby dylan7 » Sat Mar 31, 2018 4:06 pm

Thanks for both of your replies.Focussing on the questions, Lavanda, you say that the QROPS is taxed as an annuity. I understand that a pension would be taxed as income. Also, I understand that in Spain the substance matters more than the legal form, so if a QROPS is little more than a repackaged pension (which mine would be) one would expect it to be treated similarly. Do we know if there is a strong legal opinion about the annuity treatment or whether it is a grey area? The wealth tax is also an issue. How long can we expect it to continue?

El Cid
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Re: QROPS, wealth and income tax implications

Postby El Cid » Sat Mar 31, 2018 4:57 pm

You can only claim the special tax relief on a money purchase annuity where you bought the annuity personally from a personal pension pot and the annuity pays out regularly.

Draw down pensions, which is what you seem to be describing are not annuities.

I don’t know if the form 720 treats them as an annuity but from a tax point of view they tax it in full.

Of course you must remember that the system here is self declaration where you provide absolutely no backup to the amount you declare or how you choose to declare them. If you declared your UK state pension as an annuity, no one would challenge it - unless of course you did not, for some obscure reason, ended up involved in a tax investigation of your affairs.

Sid

Lavanda
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Re: QROPS, wealth and income tax implications

Postby Lavanda » Sat Mar 31, 2018 7:41 pm

You can only claim the special tax relief on a money purchase annuity where you bought the annuity personally from a personal pension pot and the annuity pays out regularly.
That is exactly what my OH's QROPS is. It was bought with money from a personal pension pot. His state pension is something else and so is his works pension. They are declared as pensions and taxed as pensions. They are different to the QROPS.

El Cid
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Re: QROPS, wealth and income tax implications

Postby El Cid » Sat Mar 31, 2018 10:35 pm

If it is annuity you have no control over how much is paid every month. Does he have that control over when it pays out?

Sid

dylan7
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Re: QROPS, wealth and income tax implications

Postby dylan7 » Sat Mar 31, 2018 11:27 pm

Thanks Sid. You sound like you know your stuff. To clarify, I am not referring the state pension. I am talking about a defined contribution company pension pot, where I am in control of the investments within it and I can choose the pension start date, so it looks very much like a personal pension pot. It will probably make sense to take a 25% tax free lump sum whilst I am still a UK tax resident; as soon as I do that the rest has to be converted into an annuity. Do you think that might qualify for annuity treatment? Alternatively, that can all be repackaged into a QROPS with a slightly lower annuity, so it would be costly. The cost would only be justified if the QROPS were taxed at a lower rate than the standard pension. Do you think it would be? If not, there is little sense in me getting the QROPS.

I very much appreciate your advice.

Lavanda
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Re: QROPS, wealth and income tax implications

Postby Lavanda » Sun Apr 01, 2018 8:20 am

Correct, Sid. The QROPS pays out what it pays out and that is based on in what it is invested. My OH can chose when it pays out and we have had years when it is paid monthly, quarterly or not at all for a year in order to build up the fund after a poor year, for example (see my post above). It's only one source of our income so we can do this.

El Cid
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Re: QROPS, wealth and income tax implications

Postby El Cid » Sun Apr 01, 2018 9:56 am

I only mentioned the state pension as an example. From what you have described, yours would be classed as an annuity and taxable at a very much reduced rate. You should take the lump sum before becoming a Spanish tax resident as it is taxable in Spain.

I see no reason why the QROPS approach would not qualify as an annuity if you bought a conventional annuity with the proceeds rather than using it as a draw down pension. I have an annuity bought from a personal pension fund which is taxed favourably and I have a draw down managed pension which is taxed normally. In both cases the income is taxed at the savings rate which is less than the earned income rate.

More information in the FAQ viewtopic.php?f=42&t=27576

Sid

dylan7
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Re: QROPS, wealth and income tax implications

Postby dylan7 » Sun Apr 01, 2018 3:22 pm

Thanks Sid. From the above it appears that the annuity asset is subject to the wealth tax. Do you know if a pension pot asset (could be company or state) is also subject to the wealth tax?

I read that the wealth tax is supposed to be a temporary measure. What is your best guess on how long it will last?

I think I should get professional advice to confirm my optimum strategy. My current Spanish advisor has no knowledge of UK products (e.g. QROPS, DC pension schemes etc.) and my UK advisor has little familiarity with Spanish rules. There are companies here with knowledge of both, but many appear to be at best product-pushers, unlikely to give impartial advice. Can you recommend anyone knowledgeable, trustworthy and unbiased?

dylan7
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Re: QROPS, wealth and income tax implications

Postby dylan7 » Wed Apr 25, 2018 8:50 am

in case anyone is interested, i have spoken to an accountant, who says the following:

a company pension is taxed as income. the asset is not subject to the wealth tax.

a qrop is treated as an investment, so the income would be taxed accordingly (whether or not in annuity form) and it would also be subject to the wealth tax.

this is consistent with what has been said above. i would be interested to hear from anyone who disagrees.

:wave:

Lavanda
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Re: QROPS, wealth and income tax implications

Postby Lavanda » Wed Apr 25, 2018 6:44 pm

A QROP is taxed, yes, and declared on the 730 (or whatever it's called).

dylan7
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Re: QROPS, wealth and income tax implications

Postby dylan7 » Wed May 23, 2018 4:05 pm

hmmm...we now have someone who differs

a registered financial advisor has sought out a legal opinion. the opinion, which he is willing to put down in writing, is that a qrop would be treated similarly to a pension, i.e. the asset is not subject to wealth tax and the income is subject to income tax! i guess it is a grey area.

:crazy:


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