Are you a UAE resident and thinking of transferring your UK pension? Or perhaps you have heard that by moving there you can get a UK Pension transfer to the UAE and drawdown tax-free?
Unlike with other concepts that appear to be too good to be true this is viable. However, there are a number of conditions that need to be met and adhered to.
Within this blog we will be discussing:
- UK Pension Schemes
- Pension Transfers
- Personal Pensions
- Qualifying Recognised Overseas Pension Schemes
- Why a UK Pension Holder may want to transfer a UK Pension
- Problems in transferring a UK Pension to UAE
UK Pension Background
All UK pensions fall under UK Pension Law & Legislation and therefore any transfer will need to adhere to a strict process. Depending on the type of schemes such as a final salary or defined benefit you may not even be able to transfer out of the scheme. With a personal pension, you can however, transfer out.
Why transfer a UK Pension to the UAE?
There are many reasons why you may want to transfer a UK pension to the UAE, key areas we have identified are:
- Tax efficient drawdown – Being able to draw down your pension monies without having to pay UK income tax (subject to a number of conditions)
- Currency Risk – Having your pension invested in Sterling when living in another unlinked currency opens you up to great risk
- Portfolio Management – By transferring your pension to an International solution it would allow a qualified regulated financial adviser to manage your portfolio in line with your short, medium and long term requirements. When left in a large private or company scheme it will be invested with a strategy to suit the masses and not your bespoke position.
What are my options to transfer to the UAE?
In line with UK Pension Law, you can only transfer to another HMRC recognised UK pension scheme. There are no such schemes within the UK so in direct answer to the question, no, you cannot transfer into the UAE. There are still options available, however;
- QROPS (Qualifying Recognised Overseas Pension Scheme) – QROPS have received a lot of press over the years as they allow UK pension holders to physically transfer their pension outside of the UK. The key benefit is that there is no Lifetime Allowance Limit (LTA) which is currently £1.03m, offering a significant tax advantage for those with larger pensions. Since the UK Government introduced the Overseas Transfer Charge in 2015 this is no longer a feasible option for a resident of UAE as you would incur a 25% tax on the gross pension amount.
- International (Non-Resident) SIPP – Created specifically for Non-UK residents the SIPP offers the client flexible access from age 55, option to hold international investment products and as such multi-currency whilst retaining the regulation of the Financial Conduct Authority (FCA) and in turn giving you the client the highest level of protection possible.
Considering the taxes on option 1, option 2 is the only viable option.
Are there any problems in drawing my pension tax free?
Not problems per se, however understandably there are requirements in place to ensure UK residents don’t relocate, withdraw their pension in full tax-free and then return to the UK. In order to qualify for drawdown, you would need to have lived outside of the UK for 5 years or more AND not be returning to the UK within the next 5 years.
Because each situation is unique, Harrison Brook would always recommend to speak to a Financial Adviser before making any decision.