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Offshore pensions: are they in line for next crackdown?

Pension savers have shifted nearly half a billion pounds into offshore schemes in an attempt to avoid tax rates of up to 82% on their funds.

HM Revenue & Customs (HMRC) has revealed that more than 7,300 people have transferred pension assets totalling £432m to offshore schemes since the ability to do so was introduced in April 2006. The figures were disclosed in response to a Freedom of Information Act request from Sipp provider AJ Bell.

The transfers have been made to qualifying registered overseas pension schemes (Qrops), based abroad and approved by HMRC.

Pension experts warn against using Qrops schemes to avoid UK tax rates if you have no intention of moving abroad permanently

Richard Jacobs, director of Richard Jacobs Pension & Trustee Services, said: “More than half of the people asking me to take their pensions offshore into Qrops are not genuinely planning to move abroad long term.”

Transferring your pension can be attractive if the country you are moving to has a more generous tax regime than the UK.

For some jurisdictions this can mean benefits such as lower marginal tax rates, higher levels of tax-free cash, improved death benefits, no compulsion to buy an annuity and freedom to invest in residential property.

However, a more popular motive is to avoid death duties on pensions. Pension investors reaching the age of 75 must either buy an annuity or move into an alternatively secured pension (ASP), a form of income drawdown that restricts the amount of income you can take.