One is less recognised in France and could create tax problems, warns expat financial adviser Daniel Butcher.
For expats transferring a UK pension to France, the Qualifying Recognised Overseas Pension Scheme (QROPS) is widely recognised as the best option. But which is the most effective solution, a contract- or trust-based QROPS?
To make the best choice, it is important to understand that both types are viewed differently by common law countries, such as the UK, and those which operate under civil law, like France. Examples of other civil law countries are Germany, Italy, Spain and Switzerland and common law countries include Canada, India and Australia.
“Trusts are misunderstood by civil law countries and, although not illegal in France, they are not seen through the same lens as in common law countries,” said Daniel Butcher, wealth expert and owner of DTB Wealth Management. “The reality is that trusts can encounter problems in France and could potentially be rejected as a pension by the FTA (French Tax Authorities), so holders may end up paying more tax on income and gains arising in the fund.”
While both schemes look as though they provide largely the same benefits on paper, when moving a UK pension across to France, Butcher advises his expat clients to play it safe and choose contract-based QROPS. It can be declared to the FTA as a ‘pension’ or ‘pension étranger’, just as it would have been classified in the UK.
Overall, there are three: STM Malta, Sovereign Malta and Trireme. “We have no preferences between the three QROPS listed, but STM has an interesting fee structure with no establishment fee,” said Daniel. “Anyone with a trust-based QROPS living in France may want to change to a contract-based policy and we would be happy to help people do this in the quickest, smoothest way possible.”