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New pension rules: why you need advice

March 14, 2019

If expats with UK pension funds believe they can cash them in tax free from next April, they may be in for serious disappointment. The new rules announced in the Budget and due to be finalised in the Chancellors’ Autumn Statement do offer on the face of it significant flexibility when it comes to retirement planning.

The current rules which limit the amount of lump sum that can be taken from a pension fund are being scrapped in favour of allowing people to draw whatever they want from their fund, the whole lot if they want to in one fell swoop. Unfortunately any money taken in this way will be treated as income so someone withdrawing £100,000 in a tax year would likely find themselves subject to higher rates of tax on some or all of the withdrawal.

Although the final rules have yet to be announced it is inevitable that these tax rules will also apply to expatriates and as this is income drawn from a UK source (a UK pension fund) will be subject to UK income tax. As a double whammy it will certainly be taxed in Spain and there may be an issue with double taxation relief as cashing in a pension hardly counts as pension income drawdown.

We already know that Spain doesn’t treat lump sum benefits from UK pensions as tax free and this new regime opens a complete can of worms in relation to retirement planning in respect of income tax, succession tax and lifetime allowances.

This is why it is so important to seek expert cross border advice from a financial planning expert who understands the tax rules in the UK and also how they might be applied in Spain, rather than relying on the advice of a UK adviser unfamiliar with the issues surrounding the payment of pension benefits here in Spain.

It may well be that the death charge imposed on residual UK pension funds reduces to 40% moving forward but that still remains a hefty chunk of money that your beneficiaries are not going to receive and the dilemma of course is that it is all very well taking money out of a pension scheme but what do you do with it if you don’t need it? Within a pension fund growth is free of tax which can make a significant difference to the future value of your fund.

QROPS retirement plans will need to be considered alongside the new UK rules and perhaps HMRC will tinker with these specific rules in the Chancellor’s next statement. There can be a lot of merit in moving your pension somewhere closer to your new home and outside of the UK and to take advantage of an income stream that can potentially be drawn at much more favourable tax rates than back in the UK.

For many their pension provision represents a significant proportion of their assets. Don’t leave this to chance take expert advice and make sure that your pension arrangements are held in the right vehicle to suit your specific and individual needs. Speak to a retirement planning expert at Fiduciary Wealth on 900 102 374 or email