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Expats who are as fed up with Britain's pension regime as they are with the weather can now take their funds with them and never have to buy an annuity thanks to new rules on overseas pensions.

Many of the 400,000 Britons who move abroad each year can now pack their pensions too and take their funds as cash within five years. And with research from Scottish Widows showing that two-thirds of higher-rate taxpayers are planning to up sticks to sunnier climes when they retire and this figure is set to grow.

Expats can now say goodbye to compulsory purchase of annuities and high taxes on their pensions by getting on board with what some financial experts are calling the next big thing in retirement savings – offshore pensions.

This month the Isle of Man introduced new rules for its pensions that sound like a wish list for anyone choking on UK restrictions: no obligation to buy an annuity, higher tax-free lump-sums, the freedom to invest in residential property and inheritance tax at less than one-tenth of that here.

The new Manx pensions are the latest dish on a mouth-watering menu of offshore pensions. Financial experts point out that jurisdictions such as Singapore, the Republic of Ireland and Hong Kong are even more liberal in what they will let you do with your pension, allowing you to get your hands on all the cash once you have been out of the UK for five years.

"Anyone planning to retire abroad or move overseas for at least five years should look very closely at offshore pensions as this is a serious opportunity to save a large amount of tax," says Steve Travis, a former member of HM Revenue & Customs' overseas division who now works as a cross-border pension adviser for independent financial adviser The Fry Group.

To make the most of the tax advantages of moving your pension abroad you have to move your fund to a Qualifying Registered Overseas Pension Scheme (QROPS), a form of pension introduced two years ago. Once in a QROPS scheme, your cash is no longer subject to HMRC rules, although the pension provider must report your dealings with it to the Revenue for the next five years.

After that there is no reporting requirement, and if you are still not living in the UK your entire fund can be taken as cash.

Anyone moving abroad needs to make sure it makes sense to switch into a QROPS scheme for the country that is to be their new home. Professional advice is essential because the evaluation is a triangular process involving tax rules in the UK, the country where the QROPS pension scheme is based and the country where you plan to live.

While the QROPS scheme will free you from UK tax, you may be taxed in the country in which it is based and in your new country of residency.

"There are many people who have already moved abroad who have left their pensions in the UK who should revisit their arrangements to see if they are paying too much tax," says Mike Lightfoot, the former marketing executive of the Isle of Man's pension regulator and now managing director of IOMA Horizons, a pension company.

The new Isle of Man rules make their QROPS pensions significantly more flexible than their UK counterparts. Unlike the UK, there is no requirement to buy an annuity at age 75, tax-free cash is set at 30 per cent rather than 25 per cent and funds can invest in residential property, an idea that was floated over here two years ago and then dropped.

What is more, the IHT position is more attractive on funds held over there too. If you die in income drawdown before 75 in the UK' IHT is charged on the fund at 35 per cent in the Isle of Man it is just 7.5 per cent across the board.

"Many people who are in drawdown at the present are in a position where they simply want to hand their funds over to their family. For them there is no comparison between an IHT rate of 35 and the Isle of Man's 7.5 per cent," says Richard Jacobs, director of Richard Jacobs Pension and Trustee Services, an IFA.

Singapore QROPS pensions can be even more attractive, with no IHT at all, and zero local income tax on drawings, although these plans are more expensive, running up to 6 per cent of fund value in some cases.

Isle of Man pensions charge income tax at 18 per cent, which will be taken account of in your country of residence provided it has a double taxation treaty with the Isle of Man – most EU states do. But you also need to consider what the local tax rates are in the country to which you are moving.

France, for example, is not a great place to be taxed on your pension, because tax-free cash is not an option so you will be taxed on your lump sum as income. Taking tax-free cash before you go makes sense if you are retiring to live there.

Local income taxes in Spain and Italy can leave some people worse off, depending on their situation, although the IHT savings and access to cash after five years could make QROPS plans worthwhile in the long run. Portugal has a generally lower rate of income tax while anyone retiring to Cyprus will save thousands as it charges only 5 per cent income tax on pensions.

"For the super-rich or those with several homes it is possible to become a fiscal nomad and not be taxed anywhere," says Travis. "However, the Revenue is making it harder and harder to manage that. But for those that don't, QROPS transfers can still be very exciting."

Full story from www.telegraph.co.uk