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Theres more to offshore pensions than QROPS

Stellar AM’s CEO Jonathan Gain looks at an old and little-discussed pension called the Section 615.

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Whilst there may be pros and cons to leaving loved ones for the sake of better opportunities and greater earnings; there is one area of becoming an expatriate which should make compelling reading to those who are going to be employed or are currently employed outside the UK.

The area is pensions and, for the avoidance of doubt, I am not going to talk QROPS which is where every conversation involving expatriates and pensions leads. QROPS deal with individuals who are retiring to another country; the world is not yet awake to what can be done for those who are working.

Little-known legislation

There is a little known piece of legislation in the UK which has been around for a considerable period of time and is an extremely effective piece of financial planning for those individuals who are resident outside the UK and who intend to return to the UK at some future point.

HMRC provide guidance that to be non-resident you leave the UK to work abroad under a full-time employment contract, that contract covers at least a whole tax year and your absence from the UK does in fact span a whole tax year.

Now we all know that pension rules have changed dramatically in the last few years in terms of not only sums contributed, but increased retirement age and a clamp down on anti avoidance and forestalling.

However all is not lost although to benefit you need to be a non-resident in the UK.

Firstly, these schemes make no issue of domicile or require changes to comply with the impact of Gaines-Cooper. If you are a UK domicile individual employed anywhere in the world or your tax residence is different from your domicile you really should be aware of section 615 schemes.

Section 615 refers to a particular part of the Income and Corporation Tax Act 1988 but the legislation can be traced back to the Dutch East Indian Trading Company and the 17th and 18th centuries. The most powerful company at the time lobbied the UK government to change the rules so that being employed overseas had no detrimental effect on earnings compared to those staying at home – consequently the company got its traders.

Section 615 schemes can easily be set up and both employer and employee can contribute. There is no cap on the level of contributions and many clients contribute through salary sacrifice as this helps mitigate tax and social security in their country of employment. Like all traditional schemes, money invested grows tax-free and is outside the estate for inheritance tax and beneficiaries can be nominated.

There is a wide range of investment opportunities and is SIPP-like in terms of its capabilities including residential property and unlisted securities.

The greatest attraction comes on drawdown. Benefits can be taken from the age of 55 or earlier if leaving employment service and the rights can be taken as one tax-free lump sum – yes that’s correct – one cheque and no requirement to buy an annuity.

Too good to be true?

If you think it is too good to be true and have reservations, do look at the HMRC website, it gives chapter and verse on their status and validity. These schemes survived A-day and are unlikely to change in the future.

They do not deprive UK plc of any revenue and indeed if expats return to the UK with a large pot of money to spend then this is actually good news for George and the Treasury.

Section 615 schemes are the best pension scheme you have never heard of but if you are an individual thinking of overseas employment, currently working overseas or a financial adviser, accountant or multi-national employer then you should really be investigating.

You know where to start.

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