Understanding QROPS (Qualifying Recognised Overseas Pension Schemes) and its relevance to UK pension policyholders who have settled, or intend to settle, in Spain…

QROPS (Qualifying Recognised Overseas Pension Schemes) became available with effect from 6 April 2006, though in reality the first QROPS plans became available in 2007.

QROPS is a pension transfer of a UK pension scheme or plan to an authorised scheme which has been approved by the United Kingdom’s HM Revenue & Customs (HMRC).

  • Most of the available schemes have been listed on the HMRC website: Click here

QROPS is best suited to British expats, although as the transfers apply to UK pensions they could also apply to non-UK citizens or residents who have a UK Pension. This is quite common among other nationalities who have worked in the UK but have moved elsewhere.

Five Year Rule

The Five Year Rule is an important aspect of QROPS and needs careful consideration. The rule relates to the period of non-UK residency.

  • Where a policyholder has been a non-UK resident for less than five full UK tax years, the QROPS provider must report to HMRC all payments made to the policyholder and the QROPS must act as if it is still a UK scheme
  • After five full and complete UK tax years, the QROPS provider has no liability or requirement to send reports to HMRC and the QROPS then acts on the rules of the jurisdiction in which it operates


British expats in Spain fall into two groups:

  1. Spanish residents: those who have settled in Spain and are spending 183 days or more per year there. This group is required to pay tax in Spain.
  2. UK residents: those who spend less than 183 days per year in Spain. This group is liable for tax to HMRC in the UK.

The second group are unlikely to benefit from QROPS unless they intend to move away from the UK and become non-UK residents, in which case, if they live in Spain, they will become Spanish residents.


The HMRC website demonstrates that there are many authorised QROPS around the world. Many of these have been set up to benefit employees of any nationality who have held UK pension schemes in the past.
Note: This section deals only with expats in Spain; in other territories local circumstances may arise.

Because of the five year rule, especially where the policyholder or expatriate has spent more than five years as non-UK resident, a very defined market has developed.

Four jurisdictions dominate the market for QROPS in Spain, although Spain itself is not one of them.


Guernsey has three attributes which, although not unique, have helped it to become the market leader:

  1. Income paid gross
  2. Existing pensions expertise
  3. Highly Regulated

In addition it holds a long-standing, prominent position as an Offshore Financial Centre, and most of the trustees based in Guernsey have been educated and trained in the UK.

Guernsey’s trust-based financial and legal framework makes it ideal for handling UK pension transfers which are also founded on a trust basis.

A Spanish resident with a QROPS in Guernsey receives income without tax deducted and declares the income on their Spanish tax return.

Investment, pension and other financial products are regulated by the Guernsey Financial Services Commission (GFSC). The GFSC is a strong regulator and has an excellent reputation for managing compliant business in Guernsey. As much of Guernsey’s business comes from the UK, the GFSC has forged close working links with HM Revenue & Customs (HMRC) and the Financial Services Authority (FSA).

The Association of Guernsey Pension Providers (GAPP) meets regularly and has been able to pool expertise in order to establish strict rules for pension businesses. This organisation is currently adopting a QROPS Code of Practice to ensure high standards.

New Zealand (NZ)

New Zealand QROPS have one feature not seen in any other jurisdiction: in the case of non-UK residents for five or more complete tax years, the funds held in a New Zealand QROPS can be taken as cash, on the basis of a “return of capital”.

All QROPS have to be approved, and are regulated and monitored by the UK tax authorities (HMRC). As mentioned above, the trustees of the schemes have to report to HMRC all details of cash withdrawals for a period of five complete tax years (UK tax years start on 6 April). After this time there is no requirement for the QROPS trustees to report to HMRC and, crucially, the QROPS then become governed by the rules and taxes of the jurisdiction in which they are based.

According to New Zealand rules, a lump sum can be taken and there is no tax deducted for non-New Zealand residents.

Isle of Man (IOM)

Isle of Man has many of the attributes of Guernsey, especially UK-trained accountants and lawyers, many years as an offshore centre and a UK pensions background and understanding. There are two ways in which it differs from Guernsey and explains why Guernsey has a much bigger market share than IOM.

  1. When QROPS began, it was a requirement of IOM rules that tax was deducted from income before being paid to the policyholder. This gave Guernsey a crucial market advantage. Recognising this, the IOM Government changed the regulations in late 2010 and it is now able to compete on even terms.
  2. The Isle of Man has no double taxation treaty with Spain. As long as no taxation is deducted at source, this should not be problematic for Spanish residents (taxpayers). However, it was highly significant when tax was deducted at source.


Malta has three distinct advantages when dealing with British and Irish clients, especially those who become residents in Spain.

  1. Malta is an English speaking country,
  2. with a low cost economy,
  3. and membership of the European Union.

Malta was given approval by HMRC to offer QROPS in November 2009. Individual trustees then needed to get approval from the Malta Financial Services Authority (MFSA). It was not until February 2010 that the first QROPS were approved. There are now a growing number of approved schemes.

It is probable that Malta will become a major centre for QROPS in the future; although at present there are not many schemes available. The MFSA requires a lot of detailed information before approving any scheme. Although this may be unfortunate for trustees it is very good for consumers, as it offers investor protection.

In the long term it is possible that Malta could even rank alongside Guernsey as a QROPS jurisdiction. However, at present the shortage of choice means that good, knowledgeable and regulated advice is still needed.

Why not Spain?

Spain does not recognise a trust structure, which is necessary to accept a UK pension. Therefore any potential transfer to a QROPS by a Spanish resident would take assets currently held in trust out of trust, with negative taxation consequences.

It is much better for Spanish residents to have the capital sums in a trust outside of Spain and then for any income to be taken and declared in Spain. By declaring that the income is an annuity, which Spanish law recognises, favourable tax treatment is given, even though an annuity need not be bought from a pension provider.


Spanish residents are required to report income from QROPS on their annual return. By use of the annuity rules favourable tax treatment can be obtained. The transfer of UK pension schemes and plans to QROPS attracts no taxation charge.

QROPS funds held in trust outside of Spain are not subject to Spanish succession tax since, technically, they are not “owned” by the policyholder.

In Conclusion

Given the right circumstances, QROPS can be an excellent retirement planning arrangement for expatriates in Spain. However, it is a pension transfer and for many policyholders a pension scheme or plan is a major asset. The advice sought should, therefore, be qualified and authorised.

In the UK the Financial Services Authority (FSA) has very strict rules on pension transfers. These do not apply in Spain and caution should be taken to get the right advice. There are still unauthorised advisers operating and policyholders should proceed with care.

Note: New regulations were drafted in late 2011 proposing changes to QROPS arrangements and rules. After a consultation period in early 2012, the changes are expected to come into effect on 6 April 2012. This INFOrmation page will be amended to reflect any changes as soon as the new regulations are passed as law.

Information provided by David Goodall, publisher and editor of Financial Pages in Spain (website and blog). David has been a Financial Adviser since 1991 and fully qualified the year after. His first hand knowledge of financial services in Spain dates back to 2002. www.financial-pages-in-spain.co.ukCopyright © David Goodall All Rights Reserved