CanadianLove

We are looking at transferring our public sector pensions from UK to Canada. We know they have to go into a QROPs. Are these locked? Can we access the funds in the same way you would access any other RRSP where you get taxed on early withdrawal?

JonboyE

It depends on the terms and conditiond of the RRSP you put your money into. You certainly do not want to withdraw anything until you hve been non-resident in the UK for at least five years.

Also, make sure you get proper advice. Although there are several benefits of an RRSP over a defined contribution pension in the UK the issues are less clear cut if you have a defined benefit pension.

CanadianLove

Why does length of non residency make a difference? We need to access the funds due to some financial issues. We are in our 30s and have already started saving separately for retirement which we can not access at this time.

JonboyE

If you take money from an RRSP within five years of becoming non-resident HMRC levies a tax of around 55%.

Almost Canadian

This period has now been increased to 10 years.

Siouxie

You may want to read this thread: http://britishexpats.com/forum/showthread.php?t=755817

JonboyE

The reporting period has been increased to ten years but the tax applies to payments in the first 5 years.

UK tax charges for overseas pension schemes

...

Tax on these payments will only be due if the member was UK resident at the time of the payment, earlier in the same tax year or in any of the five previous tax years.

See http://www.hmrc.gov.uk/pensionscheme...eas-basics.htm

CanadianLove

I would be taxed in Canada. You can be taxed twice?

Siouxie

It's like a penalty tax.

JonboyE

I haven't looked into this in any depth so don't take this as gospel. But, I think in this case you may be taxed twice. In Canada you pay income tax on withdrawals from an RRSP. To get foreign tax credit you would have to demonstrate that the 55% tax levied by HMRC was also an income tax. I can see a couple of problems. The CRA could argue:

a) this is a penalty rather than an income tax, or
b) this is a recovery of tax relief allowed in years before you became a Canadian tax-resident.

In either of these circumstances you would not be allowed a foreign tax credit in Canada.

CanadianLove

So confused!

CanadianLove

So if for example I made a withdrawal of $10k I would be taxed 20% upfront through the RRSP and 55% from the HMRC even though I haven't resided in the UK since 2011 and only resided there for 6 years? So from $10k I would have $4500?

JonboyE

Well, the simple answer is that you can't do what you are prosposing until you have been out of the UK for 5 complete tax years.

JonboyE

Only $2,500 and there might be more tax. The RRSP provider will withhold 20% but this is just a withholding, not your final tax liability. This may be higher, depending on your other income for the year.

Don't do it.

CanadianLove

So no access for five years - period? And then I would be taxed 55%? My bank - who has a QROP on the list said it's not locked. The pension isn't even that large as I only paid in for a couple of years and therefore not worth leaving it in the UK - I am Canadian and won't be returning. I am based in Ontario although it's a Canadian bank.