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Government to clamp down on Qrops tax dodgers

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The Government is planning a crackdown on qualifying recognised overseas pension schemes due to concerns some schemes are being used to circumvent UK tax rules.

HMRC has proposed a number of revisions to secondary legislation for the Finance Bill 2012 which will increase the reporting requirements for Qrops.

The changes include:

·     the introduction of an acknowledgement by the individual, to be completed before a transfer is made, that tax charges may apply;

·     the introduction of revised time limits for registered pension schemes to report transfers to Qrops;

·     the provision of additional powers to HMRC to request information from a scheme manager of a Qrops;

·     a revision of the time limits for the reporting of payments by a Qrops to HMRC.

HMRC says: “The Government has found that Qrops are being marketed extensively as a way of paying amounts or enabling the payment of amounts that are not allowed under UK rules (in particular 100 per cent lump sums) once the UK tax rules no longer apply.

“This is contrary to the policy rationale for allowing transfers of UK tax-relieved pension savings to be made free of UK tax to Qrops.”

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Readers' comments (6)

  • Tom, I think the headline here is unhelpful. The main step in the draft regulations will effectively block transfers to New Zealand plans for the purpose of taking the whole fund as cash. The other major change could hit Guernsey QROPS hard, and my guess is that they will lobby against part of the draft regs - although this does not mean that they will be successful.

    I think that this proposed change in legislation highlights the risks of transferring to any QROPS using a non specialist adviser.

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  • I agree with David. The purpose of the new legislation will make sure that QROPS jurisictions follow the 'spirit of the law'. I don't think this is a clampdown rather a tightening of the rules to make sure all QROPS are compliant with HMRC and block the QROPS schemes (primarily marketed as NZ QROPS) as a 100% cash in. Clearly that is not within the 'spirit of the law' and we saw with the outcome of the Gaines-Cooper case what happens clients try to go around HMRC's policy rationale.

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  • Agree also with David - its a silly title and misleading.

    For those who would like a bit more detail :

    The draft regulations introduce four conditions that a scheme must satisfy to be and to remain as a QROPS. It is the second and the fourth of these conditions that introduce the key changes.

    The new conditions have the effect of :

    1.Putting to an end with effect from 6 April 2012 the ability of long term non UK residents to transfer their pension fund to New Zealand and receive a lump sum of 100% of the fund.

    This change introduces certainty of timing, as this was in effect already the subject of legislation passing through the New Zealand Parliament.

    2. Introducing a new and unexpected provision (Condition 4) that requires uniformity of tax treatment of benefits for local and non local residents. Using HMRCs words :

    “If the country’s tax regime does not meet these conditions then schemes based in that country will not be able to be a recognised overseas pension scheme.

    Looking at the system of personal income taxation of scheme benefits in the country where the scheme is established and ignoring any double taxation agreement rules, one of the following statements must be true:

    1. There is no exemption from tax in respect of benefits paid to both resident and non resident members.

    2. There is exemption from tax for non resident members and it also applies to resident members, regardless of whether the member is resident when they join the scheme or at any other time while they are a member. ‘

    Ironically New Zealand pension schemes satisfy Condition 4 as there is no tax relief on pension contributions made by local residents, the fund is taxed, and there is no tax on benefits when paid out. No tax applies either on benefits made to non residents of New Zealand so “there is exemption from tax for non resident members and it also applies to resident members”.

    This however would seem not to be the case with regard to Guernsey and the Isle of Man ( Section 50C schemes in particular) where pension schemes differentiate in terms the of tax treatment of benefits between local residents and non residents. So as local residents would be taxed on benefits and non local residents are not taxed on benefits condition 4 under the draft regulations are not satisfied.

    This is therefore a huge issue for Guernsey as unless condition 4 is revised or Guernsey law changes no Guernsey scheeme will qualify as a QROPS after 5 April 2012.

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  • The ‘Proposed’ New Rules will, in reality, only affect those 'Overseas Pension Schemes' that didn't qualify, from HMRC's perspective, in the first place.

    I think it is possible that, if you look at the detail of these ‘Proposals’ and the ‘Existing Rules’, these are not New Rules anyway.

    They are just clarifying what rules are already in existence.

    If you look at the existing HMRC / QROPS rules, certain popular jurisdictions have never qualified, even though they are 'Recognised' by HMRC.

    There is NO such thing as an ‘Approved QROPS’ or even an ‘Authorised QROPS’.

    They are just ‘Recognised’ and they will only retain their status as long as they obey the rules set out by HMRC.

    I am not sure what this will mean for the Isle of Man, Guernsey and Jersey (If they decide to go into the QROPS Market Place for Non Residents).

    These three, along with many other jurisdictions, will need to amend a lot of their rules (Internal and External) to be able to retain QROPS Qualification which, in reality, they do not currently have.

    I doubt whether they will do this as the fallout from these changes will be worse for the ‘Locals’ and those people that are not involved in QROPS.

    It's funny that most of the noise being made about these 'Proposed Changes' is from Advisers and Countries that are going to lose out even though they never qualified in the first place.

    Looks like that the EU route (Subject to some Ts & Cs) is the only one that has any legs especially as there will be, as there always has been, 3 categories of which Category 2 will be difficult and Category 3 will not work.

    Just in case it is not obvious, the EU route is in Category 1!!!!

    Interesting Times.

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  • I am in the process of transferring a UK pension to New Zealand. I need to release the funds(on the 6th April!) to pay for my second hip operation. I've already used most of savings to pay for the first one and this is the only way I can afford to do this as I am resident in Spain and do not qualify for free health treatment in either country. If the UK governemt then chooses to tax my transfer I am prepared to refuse payment on the grounds that I am saving the country a considerable sum by paying for my treatment privately. Once I have paid for the operation the tax would effectively bankrupt me. Many thanks, Mr. Cameron.

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  • Im worried, my husband is thinking of transfering is UK pensions to a New Zealand QROPS and takeing 100% cash is this legal,I look forward to you response.

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