QROPS question - pensions
Apr 4th 2014 | 12:29 am
#31
Seasoned Maritimer
Joined: Jun 2005
Posts: 8,309
From: Fredericton, New Brunswick CA
Re: QROPS question - pensions
I haven't and never said I have. I would be royally screwed by the tax man if I withdrew, but it isn't locked in so I could withdraw if I was stupid or desperate enough.
Apr 4th 2014 | 1:19 am
#32
Magnificently Withering
Joined: Jan 2007
Posts: 6,908
From: Oakville, ON
Re: QROPS question - pensions
It's certainly possible to withdraw funds even from a locked-in QROPS account. In cases of financial hardship, you can effectively seek an exemption from the CRA to unlock some or all of the funds in a LIRA.
The biggest challenge when looking to do this before you've been here for five years, though, is that HMRC's penalty for early withdrawal is (or at least was, I'm not aware it's changed) 55% OF THE WHOLE FUND, not just of the amount you withdraw.
So suppose, for illustration, you had 30,000 pounds sitting in a fund in the UK. You do the QROPS thing and end up with 54,800 dollars in a Canadian LIRA. Ask the CRA nicely to unlock it, and you have that money available in extremis. But now suppose whatever financial crisis you're in means you need to gain access to 10k in Canadian funds. You'd get stung a withholding tax on the Canadian end (20% for a withdrawal of 10k), so you'd need to withdraw $12500 to get your $10k. But at the same time HMRC will ding you for 55% of the whole $54800 as an early withdrawal penalty, so would take $30140 out of your fund.
Your $10k crisis fund has cost you an additional $32640 in taxes and penalties, leaving only $12160 in your RRSP. Unless you are in really seriously dire can't-afford-to-eat-this-month financial trouble, it is not a sensible option to consider.
The biggest challenge when looking to do this before you've been here for five years, though, is that HMRC's penalty for early withdrawal is (or at least was, I'm not aware it's changed) 55% OF THE WHOLE FUND, not just of the amount you withdraw.
So suppose, for illustration, you had 30,000 pounds sitting in a fund in the UK. You do the QROPS thing and end up with 54,800 dollars in a Canadian LIRA. Ask the CRA nicely to unlock it, and you have that money available in extremis. But now suppose whatever financial crisis you're in means you need to gain access to 10k in Canadian funds. You'd get stung a withholding tax on the Canadian end (20% for a withdrawal of 10k), so you'd need to withdraw $12500 to get your $10k. But at the same time HMRC will ding you for 55% of the whole $54800 as an early withdrawal penalty, so would take $30140 out of your fund.
Your $10k crisis fund has cost you an additional $32640 in taxes and penalties, leaving only $12160 in your RRSP. Unless you are in really seriously dire can't-afford-to-eat-this-month financial trouble, it is not a sensible option to consider.
Apr 5th 2014 | 1:18 am
#33
Forum Regular
Joined: Oct 2011
Posts: 225
From: Whitby, ON
Re: QROPS question - pensions
I much prefer the flexibility of the RRSP compared with the UK way of doing things. I'm still deciding whether to transfer my SIPP to Canada but at the moment a just say it as a diversified European side to my equity portfolio.
Apr 12th 2014 | 6:51 pm
#34
BE Enthusiast
Joined: Jan 2010
Posts: 439
Re: QROPS question - pensions
No, the 55% UK penalty is charged if you withdraw funds from the RRSP before you have been non-resident in the UK for five complete UK tax years. In addition, you will pay Canadian taxes on the withdrawal.
After the five years you can withdraw free of UK tax - you just have Canadian taxes to deal with.
After the five years you can withdraw free of UK tax - you just have Canadian taxes to deal with.
... Or does it have to be in the qrops for 5 years?
