Can I transfer my UK pension to Malta?

Malta is a popular destination for those hoping to enjoy their retirement in the sun.

For some retirees, it may make sense to transfer their pension to make their finances easier to manage.

A professional adviser can help you weigh up the pros and cons.

What is QROPS?

A Qualified Recognised Overseas Pension Scheme (QROPS) is an overseas pension scheme approved by HMRC that you can transfer your UK pensions into.

Transferring your pension to QROPS means your pension will be subject to local tax rules. But is also a tax trap because transferring a QROPS could trigger a 25% Overseas Transfer Charge unless you live and are tax resident in Malta.

To be considered eligible, it will need to have similar characteristics to UK pension schemes, for example, to pay benefits from the age of 55.

It’s crucial to get advice if you’re considering transferring your UK pension to a QROPs. Although there are several tax advantages, they’re not right for everyone. In some cases a transfer could trigger a large tax charge. In others another option like an international SIPP might be a simpler and cheaper solution.

If you transfer funds into an overseas pension that is not a QROPS, tax charges will apply. Most UK pension types can be transferred to a QROPS, with the exception being the state pension, which is non-transferable.  

What are the rules for transferring your UK pension to Malta?

To open a QROPS and move your UK pension to Malta, certain criteria must be met. 

Here are four key rules: 

• Your scheme must conform to the rules set out in HMRC’s Pension Tax Manual.

• Your scheme must be a recognised overseas pension plan (ROPS), registered with the local tax authority ie. Malta.

• It must pass a benefits tax relief test.

• Benefits are payable from the age of 55 (rising to 57 in April 2028), except in the case of illness.

Your QROPS must also be established in an EEA member state with a double taxation agreement with the UK, such as Malta.

From 6 April 2024, the amount transferred to a QROPS will be tested against the overseas transfer allowance. This allowance is set at £1,073,100 (or a higher protected amount if applicable).

If the transfer exceeds this allowance, you may be subject to a 25% overseas transfer charge on the excess.

What is an international SIPP?

An international SIPP, is a popular option that is much simpler than using a QROPs. It’s designed for expats but it’s actually registered in the UK and follows the same rules as a UK SIPP.

If you have an international SIPP it will be subject to UK tax rules. 

Here are some key features of an international SIPP.

• Regulated by the FCA like other UK schemes.

• Flexible access from age 55, rising to 57 in April 2028.

• Subject to UK pension rules - eg. 25% tax-free lump sum.

• Income is taxed based at local rates in your country of residence.

What are the key benefits of transferring your pension to Malta?

Malta is subject to stringent EU laws, so your pension will be protected.

It also has well-established QROPS that meet HMRC’s criteria, and there is attractive tax flexibility on pension benefits. 

Here are some of the main benefits:

• Investment choice: Ability to hold a wide range of investments in multiple currencies.

• English language: With English as the official language in Malta, transferring and understanding communications about your pension will be easy.

• Double tax treaty: There is a double tax treaty in place, which means you don’t have to worry about being taxed twice on your pension income.

• Potentially favourable tax treatment: You’ll have access to the local tax rules, which benefit retirees with a flat 15% income tax charge - although there are strict qualifying criteria which you’ll need to meet.

• Income drawdown: You can start receiving your retirement income at 55. Your pension is given via drawdown, which means that some of your QROPS fund is used to provide your income each year, while the rest remains invested.

Are there downsides to transferring your UK pension to Malta?

There are a few disadvantages to using a QROPS:

• Loss of benefits: Watch out if you’re transferring a final salary or defined benefit scheme. They have guaranteed minimum pensions and cost-of-living adjustments linked to an inflation index, but these are not transferable to a QROPS.

• Deregistered: Another issue is the possibility that your QROPS could be deregistered. If your scheme is ‘delisted,' your transferred funds might be vulnerable to taxes you have been carefully avoiding.

• Overseas transfer charge: A punitive 25% charge could apply if you transfer to a country where you are not a tax resident or if your transfer exceeds the £1,073,100 Overseas Transfer Allowance.

• 10-year rule: If you withdraw money from your QROPS within 10 years of moving to Malta, you could still be subject to UK income tax.

If the transferred amount exceeds the overseas transfer allowance (£1,073,100 or a higher protected amount) or if you move to a non-EEA country within five years of the transfer, you may face a 25% overseas transfer charge.

This charge is applied to the excess amount or the total transfer amount if not exempt.

The lump sum death benefit allowance (LSDBA) may also be relevant. If you pass away before you turn 75, the LSDBA allows for tax-free lump sum payments from your pension up to the allowance limits.

However, if your QROPS is deregistered or the pension scheme is not compliant, this benefit may be affected.

If you have any concerns about transferring your UK pension, it’s worth considering expert financial advice.

Can I access my state pension in Malta?

If you retire in Malta, you are entitled to your UK state pension if you have made sufficient national insurance payments and are of retirement age.

As Malta is in the EEA, it will rise in line with the UK. 

How can I transfer my pension from the UK to Malta?

To transfer your UK pension to Malta using a QROPS, follow these steps:

Make sure you’re eligible 

Ensure that your pension meets the criteria for a QROPS in Malta and that the Maltese QROPS is a registered scheme that meets HMRC’s qualifying criteria. 

Choose your QROPS provider in Malta 

It's a good idea to do your research to find a QROPS provider that’s right for you.

You should also consider any fees and your investment options, among other features. 

Tell your UK pension provider 

You must let your UK pension provider know you intend to transfer your pension to a QROPS in Malta.

They will give you forms and other documents you need to complete. 

Complete and submit the transfer forms 

You need to carefully complete the transfer forms - everything must be accurate and include any supporting information that’s requested.  

Finally, you need to submit the completed forms to both providers.

Your UK provider will transfer your pension to the QROPS in Malta, which is subject to approval by HMRC.

As this can be a complex area, it’s worth considering financial advice.  

What other financial issues should you consider when moving to Malta?

Careful planning is essential to make your move to Malta as smooth as possible and ensure access to your pension funds.  

Here are some key considerations: 

• Your property purchase: It‘s a good idea to think about how you plan to buy your new home. Do you intend to use a mortgage, your savings or the proceeds from selling your current home? If you decide to go for a mortgage, a broker may be able to help you work out exactly how much you can borrow and potentially find the right deal for you.

• Notify HMRC: HMRC will need to know the details of your permanent change of location and circumstances. A financial expert can help you notify HMRC of everything they need to know and advise you on your pension arrangements. 

• Inheritance: It's worth writing a will to choose who receives your assets when you die. Malta has different inheritance rules so it’s vital to get expert advice and update your will.

• Get insurance: You’ll need insurance cover in Malta, so look for a trusted insurance provider for your property, contents and vehicles, and possibly private medical insurance as well. 

• Open a Maltese bank account: It’s worth opening a Maltese bank account before your move. This will be invaluable for transferring funds before you arrive. 

Ensure you have a fund to help pay for flights, hotels and potentially car hire when looking for your new home.

Also, save some money for the transportation of your belongings. 

Get expert financial advice

Transferring your UK pension to Malta can be a viable option for those seeking to enjoy retirement in a sun-soaked location while benefitting from favourable tax conditions.

Malta's status as part of the EEA and its strong regulatory framework make it an attractive choice for QROPS transfers.

However, it is crucial to navigate potential pitfalls such as the overseas transfer charge and ensure your QROPS remains compliant to avoid unexpected tax liabilities.

Unbiased can quickly match you with a financial adviser for expert financial advice on managing these complexities and making informed decisions about your pension and financial planning.