Mrs Jones, a 68 year old widow, had lived and been resident for tax purposes in Spain for the previous 13 years. She was currently in Drawdown within a SIPP with a value of £600,000. As the income she withdrew from her SIPP was paid to her gross, she choose to declare this income in Spain,
She had two grown up sons, both of whom lived in the UK. Many people that she spoke to in her social circle had mentioned to Mrs Jones that they had moved their UK SIPP into a QROPS. When she first asked her accountant whether she would be better off in a QROPS, his initial response was that as she was currently being paid gross, (coupled to the accountant’s concerns that QROPS were both ‘expensive and unregulated’), she would be ‘no worse off by choosing to remain in her SIPP’.
What follows outlines the actual outcome which resulted from the decision to transfer Mrs Jones’ SIPP fund into a QROPS; whilst we highlight the very different outcome which could have resulted, had a decision been made to leave the fund in Drawdown, within her existing SIPP.
Actual outcome from taking Independent Financial Advice:
The UK regulator (Financial Conduct Authority) stated that the use of a QROPS should be considered in all financial planning exercises, and as a result Mrs Jones’ Accountant arranged for her to meet with an Independent Financial Adviser (Richmond Wealth) on her next trip to the UK.
Following a review of her circumstances, we recommended that she transfer her £600,000 SIPP fund into a QROPS based in a secure offshore regulated jurisdiction. Although the setting up of the QROPS incurred a £10,000 advice fee and a £300 initial set up fee, (The other management charge were the same as the SIPP); two years later when Mrs Jones regrettably died, her residual fund remained untouched and totally exempt from the 55% tax charge that would have been levied against any residual fund value, had she chosen to stay in the SIPP.
So as a direct result of the decision to transfer into a QROPS, the full £600,000 remaining within the fund upon her death (less the initial £10,000 fee and any income paid) was available for the benefit of her two sons who were pleased at saving £330,000 in UK taxes.
It is important to note that had the decision been made not to take Independent Financial Advice and as a result her fund remained in Drawdown in the UK based SIPP, then the outcome would have been very different.
As mentioned previously Mrs Jones died in Spain two years after having taken out her QROPS pension plan. Had she remained in Drawdown in her SIPP, the residual value of her fund would have been liable to a 55% tax charge. In other words the £600,000 remaining within her fund would have been reduced by £330,000. So the result of the decision to remain in Drawdown in the UK based SIPP would have been that Mrs Jones’ sons would have received a combined inheritance of £270,000, rather than £590,00 from the QROPS.
Independent Financial Advice is essential and as a Chartered firm Richmond Wealth will take time to understand your specific circumstances and work with your other professional advisers as necessary. We specialise in providing one to one advice that is completely independent and tailored to your personal situation.