British Expats in the Gulf
Offshore Pensions
Offshore pensions work in a similar way to most modern 'onshore' pension schemes; i.e. you contribute a set amount each month and this is invested in a range of equity funds until you reach retirement. As with UK pensions, an offshore pension grows tax-efficiently, even after you return to the UK.
As you are not paying tax whilst offshore, unlike UK pension schemes, offshore pensions do not receive a tax rebate on contributions made. These rebates have been greatly reduced recently and are no longer such an attraction to higher-rate tax payers.
Whilst there are no tax rebates, there are several other features that make offshore pensions attractive to many expatriates:
Most of these benefits relate to how the pension benefits can be taken. With an onshore pension, current regulation states that up to 25% of the pensions value can be taken as a tax-free lump sum and the remaining 75% has to be used to buy an income for life - an annuity. Once purchased, any residual value on yor death belongs to the annuity provider - even if this is the day after you purchase the annuity!
With an offshore pension, there is no stipulation as to whether you take the proceeds as cash, an income or a combination of the two. As such, those who want to take 100% of the proceeds to buy a property that they will rent out for their retirement income can do so.
Likewise, those who want to use some or all of the money to draw down an income can do so. This income is not taxed at source so there is no tax on this income (unlike a UK pension) if you live in a low-tax environment. There are even tax advantages for those who retire in the UK - a good financial adviser or tax specialist will be able to cover these in detail.
The other main benefit of offshore pensions is the management of the assets held within it. With a UK pension, set funds are generally purchased and held for the whole like of the pension - irregardless to what the markets are doing. With an offshore pension, there are normally in the region of 100 funds to chose from accross all market sectors and these can be switched (usually without charge) as market conditions change.
As you are not paying tax whilst offshore, unlike UK pension schemes, offshore pensions do not receive a tax rebate on contributions made. These rebates have been greatly reduced recently and are no longer such an attraction to higher-rate tax payers.
Whilst there are no tax rebates, there are several other features that make offshore pensions attractive to many expatriates:
Most of these benefits relate to how the pension benefits can be taken. With an onshore pension, current regulation states that up to 25% of the pensions value can be taken as a tax-free lump sum and the remaining 75% has to be used to buy an income for life - an annuity. Once purchased, any residual value on yor death belongs to the annuity provider - even if this is the day after you purchase the annuity!
With an offshore pension, there is no stipulation as to whether you take the proceeds as cash, an income or a combination of the two. As such, those who want to take 100% of the proceeds to buy a property that they will rent out for their retirement income can do so.
Likewise, those who want to use some or all of the money to draw down an income can do so. This income is not taxed at source so there is no tax on this income (unlike a UK pension) if you live in a low-tax environment. There are even tax advantages for those who retire in the UK - a good financial adviser or tax specialist will be able to cover these in detail.
The other main benefit of offshore pensions is the management of the assets held within it. With a UK pension, set funds are generally purchased and held for the whole like of the pension - irregardless to what the markets are doing. With an offshore pension, there are normally in the region of 100 funds to chose from accross all market sectors and these can be switched (usually without charge) as market conditions change.
