Last week the UK’s HM Revenue and Customs (HMRC) proposed changes to the rules surrounding the Qualifying Recognised Overseas Pensions Schemes (QROPS) that could impact those British pensions savers who look to transfer their pension overseas.
The proposals, which are currently at the consultation stage, are aimed at preventing abuse of the QROPS system and detail measures such as including requirements for the transferring saver to provide more detailed information ahead of the transfer of their funds, including a declaration that they understand the potential for significant tax penalties.
Describing the proposals HMRC revealed in a statement that the rules were needed in order to prevent QROPS from “being marketed as a way of obtaining payments from UK pension savings that, under UK rules, would lead to tax charges” which was “contrary to the policy rationale.”
A summary of the proposed changes
- New Zealand QROPS will be restricted to 70 per cent of the transfer being used to provide an income for life, the rest available as a lump sum, ending the current rule of a 100 per cent lump sum at retirement. However, there will continue to be no local tax on pensions being paid to international residents from NZ QROPS schemes.
- Guernsey will no longer act as an acceptable QROPS jurisdiction and, as such, changes in the tax laws that are applicable in Guernsey will need to be introduced to ensure that international residents who are part of the QROPS scheme are adequately taxed.
- The Isle of Man will also no longer be considered as a QROPS jurisdiction and similar tax rules will be implemented to overseas QROPS holders there.
- All transferring savers and schemes will be required to pass information about any transfers to the HMRC ahead of the transfer and will be required to sign a declaration that confirms that they have understood that they may face significant tax penalties.
- All overseas providers will be required to provide extensive information about their schemes and the people running it to the HMRC.
Unfortunately, there appears to be no plans to remove the high exit fees that are applied in Guernsey and the Isle of Man, meaning that expatriates who are impacted by the change in the QROPS jurisdictions will find it difficult to transfer their retirement savings elsewhere.
The consultation period is expected to last until the end of January 2012 and if the proposals are successfully passed into law, they will come into force on April 6th 2012. Following this, UK schemes will be required to pass information to the HMRC within 30 days of any subsequent transfers taking place.
Will you be impacted by changes in the QROPS laws? What do you think? Please leave a comment and share your opinion with our expatriate community.